Key-player insurance

Does Your Business Need Key-Player Insurance?

Key-player insurance (also called “key-man” insurance and “key-person” insurance) offers protection should an essential member of a company pass away. It allows the show to go on, even without this critical person.

“Key-man life insurance can be particularly important to a business that would suffer financially, or even its reputation, if a vital employee passed away,” Mike Raines, a life insurance specialist from Cumming, Georgia, said.

If the insured dies (on or off the job) the insurance policy is paid out to help the enterprise cope financially with the loss.

Related: What Are Non-Compete Agreements, and Should You Use Them?

Who should have key-player insurance?

If you’re a business owner, you should probably be covered by a life insurance policy.

“Any business owner should have insurance coverage as part of a buy/sell agreement or succession plan,” Emory J. Smith, founder of EJS Financial Management, LLC in Phoenix, said.

It’s safe to speculate that Apple had key-man insurance for Steve Jobs. Facebook no doubt has it for Mark Zuckerberg. When you hear about actors being insured on the set of films, that’s artist liability insurance—a form of key-person insurance.

“With the inexpensive cost of term-life insurance for most people, key-person insurance is a very small price to pay for the security of the business,” Raines said.

You don’t have to be famous, work in a Fortune 500 or even be the owner to embody a “key-player.” Raines gives examples of those who may not be top dogs but still maintain the enterprise, such as a salesperson who brings in a lot of business, an engineer that would be tough to replace or an admin who is the company’s glue. Taking out key-person insurance not only protects the business, it shows an employee just how much you value them.

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Which businesses should consider it?

James Kennemore, a South Carolina entrepreneur, was personally insured on behalf of the telephone company he founded.

“Being the source of the company’s engineering and implementation in a highly technical and specialized field, it made sense, especially at the start, since most of the initial development relied on me and millions of invested dollars were at stake,” Kennemore said.

Companies with well-defined processes and procedures are unlikely to need key-man insurance. In industries like commercial construction and development, however, this insurance is a smart choice.

“These businesses have critical ‘boots-on-the-ground’ knowledge and experience which would be tremendously hard to replace, and certainly cause financial setbacks in the event of death,” Smith said. “Also, these folks face a unique set of job-site risks.”

According to Smith, medical or dental practices, law firms and sports teams are also likely to deal with disaster from an untimely death.

“By and large, most companies do not need key-person insurance on rank-and-file employees or managers,” Smith said.

If the loss of one person, however, would mean the business’ downfall, then key-man insurance is a smart choice. You might want to consider checking in with an insurance lawyer also, just to make sure.

By Elizabeth Weiss

Elizabeth Weiss is a freelance writer and web content developer. Her work has appeared in Forbes, Reader’s Digest, Playboy, Marie Claire and other print and online publications. She also writes about legal issues in everyday life on the Avvo Stories blog. Avvo is a website with an answer when you’re thinking, “Is that even legal?” We can also help your business get a lawyer, a w-9, or a partnership agreement.

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