Overlooking the Need for Key Man Disability Insurance.
Most businesses seeking to purchase key man insurance only buy life insurance and never even consider disability insurance. The fact is, at mostKey Man Insurance ages, the threat of a disability is much greater than the likelihood of death and the financial impact on the company is just as severe.
Misunderstanding the Financial Justification Required to Buy Key Person Insurance.
Most business owners or companies considering key person insurance do not realize that there must be financial justification to obtain the insurance. In other words, the amount of insurance coverage that is available is strictly based on a realistic and justified risk of loss to the company. If the amount of insurance applied for does not accurately reflect the inherent risk, then available coverage may be limited.
Key Man Insurance Premiums are Not Deductible.
In most cases, proceeds received from key person life or disability policies are received tax free. Therefore, policy premiums should not be deducted as a business expense.
Not Planning Ahead.
The process of securing a key man insurance policy takes is time consuming. Whether you are considering a life or disability policy, a good rule of thumb is 4-6 weeks for approval. Planning ahead is always prudent. Start your key man application early and give yourself enough time for the insurance company to approve the policy.
Designating a Bank or Other Financial Institution as Beneficiary.
A collateral assignment form can be used to assure that, in the event of a death or disability of a key person, a lender or investor will receive the payoff amount of any loans or notes due with the balance of funds being paid to the business. By using a collateral assignment, the bank or lending institution never receives more money than the amount equal to the funds owed at the time of death or disability of the key person.
Not Disclosing Important Health and Lifestyle Details.
When applying for key person insurance, it is important to provide accurate and detailed health, hobbies and lifestyle information. We represent most of the nation’s top insurance companies and each has their own “niches” where they are competitive. If all significant information is disclosed up front, the insurance company that will offer you the most competitive policy based on your specific circumstances can be easily identified. However, if previously unknown details are uncovered during the underwriting process, the likely result will be a higher priced policy or having to reapply with another company to secure a better rate.
Not Choosing an Experienced Insurance Agent.
Working with an experienced independent agent is critical to obtain the best key man insurance for your business. While key man insurance is simply life and disability insurance, there are significant differences in the way the insurance companies view these cases.