The key person insurance is an insurance policy that covers a company’s liabilities if their best and top performing employees are unable to work. It usually includes coverage for death, disability, and specified injuries.
Often, key person insurance will provide coverage for the loss of profits after a crash has taken place if that employee was in charge of overseeing or performing various aspects to ensure company success. If they were unable to do so and as a result the business lost income, their families would be eligible for compensation from the insurance company.
This type of policy is typically purchased in smaller businesses where there may not be much seniority within the company structure. The insurance can help support these companies because it ensures their continued growth and stability without relying on just one main employee. They can also offer an investment opportunity for some types of investments by adding a life insurance component along with all other benefits associated with having this kind of plan in place.
There are several types of key person insurance, including partner’s and officer’s liability.
Partner’s liability coverage: provides a lump-sum payment to the business if one of the partners dies. This policy can protect a business from losing profits and income due to the death or ill health of any one partner. If this type of plan was not in place when a death occurs, the remaining partners may have been left with no source of income as well as no ability to replace that person should they be out for an extended period of time. The coverage will provide compensation accrued during that time off work through additional disability payments up to either age 65 or 67 depending upon which is older.
Officer’s liability: protects against their actions on behalf of the company, as well as their death. The coverage can provide payment to employees and clients if a criminal act was committed by one of the officers or directors of the business while performing duties for the company. Should they be unable to perform a particular duty they were responsible for due to an incident resulting in their disability or even death, then partner’s liability will kick in. This is why it is sometimes referred to as “key-man” insurance because it only covers certain individuals within the company structure who have specific responsibilities and tasks that are vital for making sure business operations run smoothly every day.
Policy wordings may vary depending on which insurer you choose, but there are some basics most companies look at when purchasing this kind of plan.