All about Key Man Insurance?

All about Key Man Insurance

 

In whatever industry, it is a fact (whether it’s a good thing or not is up to you to decide) that there will always be employees who stand out more from the rest and are, essentially near irreplaceable. Irreplaceable to the point that the company they belong to will consider taking a life insurance policy out on this person rather to offset his or her untimely death, retirement, or resignation.

As mentioned, life insurance taken out on behalf of an important employee is also referred to as key man insurance. Companies buy such insurance policies to safeguard a valuable asset to the company – in this case a person. This is really sound business logic, as there are employees that when lost, will mean a lot of financial loss on the employer’s part.

Many investors and business partners prefer partnering with a company that has key man insurance for important employees, as this indicates the company’s commitment to protecting important assets such as essential members of their personnel. Just imagine losing a person who holds a very important role in the company, as is responsible for bringing in a lot of revenue.

People like this are difficult to replace, as they will already have established a trustworthy and reliable reputation with the company, and replacing them in the case of death or retirement will be a tedious, thorough, and laborious process which will take a significant amount of time, and this will mean a loss of productivity, and therefore, profit. Companies need something to buffer and support the transition, and key man insurance is just the thing.

There are usually two types of life insurance or key man insurance – permanent life insurance, which is what it is, permanent, and the more fluid term life insurance, which can be transferred to a new employee who will be holding the post or given as a retirement benefit to the retiring employee.

A thorough screening process is launched before a life insurance policy is handed out to the employee. The company determines, usually through the efforts of the Human Resources or Personnel division, just how important this worker is. What are his or her duties? How will operations be affected in the case of their retirement or sudden death? What will be the costs (including the ones due to loss or pause of production) of finding a suitable replacement? The screening process will also determine the overall status of the health of the person in question, as well as his or her age. This is to determine if they are high-risk subjects, as insurers are reluctant to insure high risk people, or if they actually do, require a higher premium.

A key man insurance policy is important to companies who value their employees and their contribution to the organization. People have different skill levels, and there will be those who outshine the rest, and businesses need to take extra care of these people, not just for these persons’ sake, but also for the good of the company.