|Posted by deon.keyman on March 6, 2013 at 3:25 AM|
One of the biggest risks in small business is the fact that a company’s operations generally revolve around one or two key people, without whom the business cannot continue. Key person insurance is simply life insurance on those key people.
As a business owner you no doubt value the contributions each of your employees make to your business. However, there are also key individuals who are critical to the continued success of your venture. Losing such a key individual would impact you on a personal as well as business level.
A key person is anyone who significantly improves the profitability and effective management of your business. He or she is someone who:
Should one of your key people die or become disabled, the impact on your business can be devastating:
This payout helps to:
For insurance purposes, however, the amount of key person cover is usually determined using one of the following methods:
The loss of a co-owner to death or disability could impact your business in the following ways:
The co-owners enter into an agreement where they undertake to purchase the interest of their fellow co-owners should any of them die or become disabled.
A co-owner effects an insurance benefit on the life of another co-owner and vice-versa. Each co-owner will consequently own a benefit on the life of the other and pay the premiums under the benefit of which they are owner.
The insurance payout provides the cash to facilitate the purchase of an interest in the business, thus ensuring business continuity and the financial welfare of the deceased’s dependants.
more than one co-owner is involved, the benefit on the life of each
co-owner will be jointly owned by the other co-owners, proportionate to
their interest in the business.