Every business has irreplaceable personnel – maybe you're one of them – and for a business that wants protection against losing a crucial member of its team, there's Key Man Insurance.
This policy is essentially a life insurance policy that small businesses buy to cover the loss that results when one of its VIPs dies. Key Insurance covers…
- Losses from the death of the insured party.
- Lost revenue and other damages if the insured party is unable to work (due to illness or another covered claim).
Key Man Insurance is one of the less common small business insurance policies, but let's review what it is and who might need it.
What Businesses Need Key Man Insurance?
Of course, not every business needs to have a life insurance policy to protect its founder, CEO, or specialist personnel. To understand how this insurance protects businesses (and which businesses it makes sense for), here are a couple of examples.
Say you're a board member for a microbrewing company. The founder of the company is an absolutely inextricable part of the business. He's worked for years as a beer distributor and knows every liquor store and bar owner in the metropolitan area. Plus, he's an expert in beer brewing. Without him, the company would be at a loss.
As a board member, you might suggest that your business take out a life insurance policy on the founder. This will help guaranteed that your investment doesn't go flat.
Let's shift gears from talking about beer and move to the automotive industry. Say you work at a hybrid car R&D company. The head of the company's research department has been studying hybrid drivetrains for 30 years and is considered a leader in the field. If she got sick or passed away, the company would lose one of its biggest assets.
For companies who have personnel that are irreplaceable because their loss would make it extremely difficult for the business to continue, a Key Person Insurance policy offers important protection.
Does My Small Business Need Key Person Insurance?
Key Man Insurance is a specialty policy. It might make sense for your small business, or it might not. It really depends on the kind of work your do and the personnel you work with. As you think about this coverage, it's important to understand what it does and does not cover.
Key Man Insurance only covers your losses when one particular person (the person named in the policy) dies or becomes ill. It won't cover other situations that cause your business to slow down or suddenly lose sources of revenue. However other, more common small business insurance policies can cover these losses:
- Business Interruption Insurance (often included with Commercial Property Insurance) covers lost revenue when your property is damaged or destroyed by a covered property event. If you have to shut down your office for repairs, this policy can cover the revenue you lose while the business can't function at its normal capacity. This coverage can also insure your supply chain. If a storm knocks out one of your suppliers and your business is temporarily forced to shut down, you’ll be covered – even if the storm did not directly affect your business.
- Worker's Compensation Insurance covers the wages and medical benefits you owe to employees who are hurt on the job. This coverage is particularly important for small businesses. Say an employee injures their back and can't work for a month. You're legally responsible for paying them a partial salary. That cost may mean you aren't able to hire a temporary replacement for the injured worker. While shorthanded, your business might slow down and become less productive. However, by covering injured employee salaries, Workers' Comp Insurance frees up your budget so you can hire outside help and operate at full capacity.
Where to Find Key Person Insurance and Small Business Insurance
Insureon doesn't sell Key Person Insurance policies, but if you're uncertain about whether you need this policy, you can contact one of our agents (800-688-1984).
For a free quote on other small business insurance, submit our online insurance form, and our agents can send you a cost estimate in as little as 15 minutes.