Key Person Insurance – Why Is It Important?
Key person insurance is vital for any business. Businesses most important assets are their people, and if they get sick, then without key person insurance, the business could suffer.
The whole point of insurance is that it provides a safety net to life, it is a proactive way of preparing for the unknown future. Any prudent person who understands the vicissitudes of life and realises that no matter how good everything is today, it can all go wrong tomorrow. While life insurance, house insurance and car insurance are all fairly obvious, there are a number of more specialised types of insurance out there that you may not have heard of but might need.
Key person insurance is one of those less well known but vitally important forms of insurance. Key man insurance, as it is also sometimes known, is a life insurance policy that covers a business owner, president or a key employee, except that the business is the beneficiary of the policy rather than the person and their family. So critical is this type of insurance that venture capital firms require companies have it before they invest.
The idea is that it doesn’t matter what business you are in, people are the key asset and key person insurance acknowledges this, realising that if a central person was unable to work because they were injured or sick, the business would suffer, and in some cases, even grind to a halt.
Key person insurance is vital to any business as it protects them from the random and chaotic nature of life. If a person vital to the business gets sick, then the company will be compensated. While this can never replace the person it means that the company will not suffer their full loss. This means that rather than sinking into the red the company will stay afloat in the black.
Key person insurance is important for both big and small businesses. If you are a sole operator, it is important, if you are the CEO of a international company, it is essential. In both positions, if you are unable to work, the company will suffer. Think how detrimental two months off would be to a sole operator. There are not many businesses that could survive that. Or think how a company would fair if its CEO took ill. Apple’s share price drops dramatically every time Steve Jobs is sick.