Key Person Insurance
Many companies have employees who are crucial to the success of their enterprise. This may be a manager, a sales representative or another individual who drives profit. Losing a valuable employee can be devastating to a company. Offering compensation that retains the employee is good protection, but protecting against a tragedy such as death should also be considered.
For such events, more companies are looking at insurance with the idea that a death benefit will provide two options: to fill in the gap of profits during which a replacement is found and trained or the money itself is earmarked as a fund to attract a highly qualified replacement as quickly as possible, without the worry of suddenly having heavy additional expenses associated with the hiring of such an individual.
Where key-person insurance is to be used, the policy should be corporate-owned and funded by the company, though of course the premiums will not be deductible.
While key-person insurance is often thought of in the context of an employer/employee relationship, such insurance can be used in other cases where a company (or even an individual) is reliant upon a third party and may suffer significant injury if that party were to die.
While insurance might not necessarily cover all possible losses (especially the loss of future anticipated profits), if a key-person passes away it can provide at least a base level of protection. The insurance option should be kept in mind anytime you are embarking upon a venture (or are in the midst of one) where an unexpected death could spell financial disaster.
