Many people understand the importance of having a life insurance policy – if you or a loved one were to pass away, this policy ensures that integral expenses will be covered.
However, this Life Insurance Awareness Month, organizations need to look at life insurance through more than an employee benefit lens. Key person life insurance can be the difference between a business surviving or failing after a key person’s death.
Key person life insurance is purchased by organizations to insure the life of an important member of their team, say a C-suite executive. If a key employee dies, a business may suffer in a number of ways including:
- A disruption of sales and revenue
- Increased expenses associated with hiring a replacement
- A loss of management skills and expertise
- Credit difficulties
A key person life insurance policy will provide your business with the liquidity it needs to overcome the premature death of a key employee. Here’s how it works:
- An employer identifies a key employee whose death would result in financial loss to the business. The business gives notice that it intends to insure the employee’s life and obtains the employee’s written consent.
- The employer applies for, owns, and is the beneficiary of insurance on the key employee’s life. The premiums are not deductible by the employer.
- When the employee dies, the business receives the proceeds to compensate for the economic loss suffered as a result of the key person’s death.
Life insurance is more than a voluntary benefit your organization can provide to employees. It’s an insurance product that can very well protect the future of your business.
If your organization is interested in learning more about insuring the life of a key member of your team, contact Chris Henderson, Managing Director of M3 Financial.
Investment advisory services offered through M3 Financial, a registered investment advisor and separate entity from M3 Insurance.