What is business insurance?

Business insurance is normally taken out by a business owner as a form of business protection against losses. A business insurance coverage will ensure business continuity, especially when normal business operations are hampered by unexpected turn of events. This insurance is normally available through a wide range of coverages and policies, including property insurance, casualty insurance, liability insurance, commercial auto insurance, business interruption insurance, and health insurance, among others. If you want to protect your business against fire or flood, you can obtain a fire insurance policy or a general property insurance coverage.

What is key person life insurance?

Key man life insurance is one form of business insurance normally taken out on the life of any employee whose skills, or contributions to the company are considered vital to the continuation or progress of the business. If these employees or partners fall ill or become disabled, the profitability and growth of the business could be placed at risk. The proceeds from a key person life insurance claim may be used for business-related activities, such as the recruiting and training of replacements, financing for the continuity of the business, or in buying out the shares of the partner or investor who is no longer able to participate in the business.

Key person insurance may be in the form of life insurance and/or disability insurance. In both cases, the beneficiary of the coverage is the business, and not the person insured. A key man life insurance benefit can be claimed only if the insured key personnel has died, while a key man disability insurance becomes payable only when the insured worker or partner has become disabled or incapacitated.

The clear difference

Simply put, key person life insurance is just one form of business life insurance.  A business insurance policy is obtained by a business owner in order to provide ample protection of his business against losses brought about by unforeseen eventualities, whether from fire or flood, accidents, or legal liabilities. Key person inurance protects the business against losses resulting from the death or disability of a valuable employee or employees. The type of business insurance policies you will obtain for your company will ultimately depend on its specific needs, the value of your employees in the continuation and profitability of your business, and the potential risk faced by your enterprise.

A key person life insurance coverage is definitely one of the most valuable forms of business insurance you can obtain for your company, especially if you have a small service business that is entirely dependent on the skills and contributions of your top employees.

Check for the most competitive rates available

Many key man insurance policies that provide disability benefits are offered at different rates, depending on a number of criteria. Most of these policies are of a short-term nature, so you might want to verify first whether you’d prefer shorter-term or a longer-term coverage when it comes to insuring your business. Finding a suitable replacement can take some time depending on the skill set possessed by the key employee or the scope of his responsibilities within the business. Some key man disability insurance policies work under the assumption that finding a good replacement can be done within 12 to 24 months. If you think your business can find a good replacement within that period, getting these types of disability coverages can work well for your business.

Preparing for the key person insurance interview and exam

Most insurance providers will require an interview and an exam prior to the approval of the policy. Normally the interview will be short and may be done in person, online, or over the phone. The purpose of the interview is for the company to complete the personal profile of the insured to make sure that no important detail is left out. Moreover, a physical examination is needed before the approval of a key man disability insurance. Routine physical examination may involve blood pressure checks, blood and urine tests, or even an EKG.

Choosing the payout option

During a claim, a key person insurance policy for disability is normally paid out in two ways – monthly and lump sum. The monthly benefit payout has a shorter elimination period, usually between 30 to 90 days depending on the insurance provider. A shorter elimination period means that only a short period is needed before your business can make a claim on the policy. In the case of lump sum payouts however, a longer elimination period of 365 days or one year is common, although this period may vary depending on the provider.

A good key person disability insurance policy can save your business from potential losses in the event that a key worker or partner becomes temporarily incapacitated or permanently disabled. The proceeds of the policy may also be used in hiring a new replacement. By keeping in mind these helpful tips you can find a disability insurance policy that will provide your business with the protection it needs, so that productivity and profitability are not compromised in the absence of one or a few valuable employees.

Getting a free online quote

You may begin your key man life insurance application by getting a free quote online. As almost all business life insurance companies have become more accessible on the web, anyone can submit a request and obtain a quote online. It is essential however for you to provide all the necessary information in your online request to ensure that you receive an accurate quote by the insurance provider, for the type of policy you require.

If you are insuring yourself, the business owner, you will be asked to provide personal details and contact details such as your email address and phone number. The same process is necessary if you’re planning to insure a valuable employee or several key workers. You will also need to include personal information details such as sex, birth date, and residential addresses. You will then choose the term, insurance amount, and schedule of premium payments. Once all the requested details have been submitted, the insurance company will begin to process your request and provide you with a quote.

Comparing key man life insurance quotes

One advantage in getting a quote is that you are not limited to only one insurance company. You can request  different quotes from different insurance companies to see which policies you can afford or which ones are best suited for your business. Make sure that you have taken into account the number of employees you will be insuring, the type of coverage that applying for, and finally, the calculated risk faced by your business if anyone among your key employees are unable to work. These online quotes can provide you with at least a close estimate as to how much you will need to spend for key man life insurance, given the size of your company and the number of key personnel that you need to insure.

Small to medium-sized businesses can benefit greatly from a comprehensive life insurance package, especially if the profitability of the company rests on the skills and expertise of a few select individuals. Now with the ease in getting online quotes, finding the right types of policies is not only faster but also more convenient.

Finding out how much key man insurance you need

One crucial step in acquiring sufficient key person insurance is to actually find out how much coverage your business needs. Does your company depend on one single person alone or are there several key employees within your organization? Do you plan on insuring yourself, being the owner of the business, or do you plan on insuring your partner as well, in the case of a partnership? How much are you willing to take out in terms of insurance or how much can your business actually afford? All these considerations will lead you to choose a coverage that is appropriate for your business.

Making the right calculations

You can do your homework ahead of time, however, to make sure that you choose a policy that will sufficiently cushion your business from losses in case one of your valuable employees falls ill or dies. Begin by evaluating how many employees you will need to insure and how long it will take for you to find a replacement. Also, you will need to evaluate how much profit this employee is bringing to your business over the previous 12 months If there are any shifts in the sales or production output of your employee, you may include that too. This will allow you to determine the potential profits which may be lost if your key employee is unable to perform as expected. You need to make sure that you have sufficient key man insurance to bolster business operations while you are trying to find a replacement.

If this person has specialized skills and finding a replacement requires considerable time, make sure that your business is sufficiently covered during those periods when a replacement is yet to be hired. Some employees within your company may be more valuable than the others, so you might want to consider getting more comprehensive key person insurance for them.

Communicating with a professional agent

Calculating an estimate as to how much insurance your company needs, will help your trusted insurance agent provide you with realistic key person life insurance options. Your agent can also point out possible scenarios you may not have considered, in determining how much insurance you should get for your business or your employees.

A key man insurance policy or coverage that is a best fit for one business may not exactly be a good choice for another.  You need to know how much insurance you should buy beforehand, so you don’t waste time looking into policies which are not designed for the type of enterprise that you have.

Obtaining a business insurance quote can be done in a few minutes, especially since business insurance companies are offering online quotes through their websites. However the services of a qualified business insurance agent can help you carefully review all the options available to you, so you end up choosing a comprehensive policy for your business and your key employees.

A wide range of business life insurance options

Although taking out business insurance coverage for your company doesn’t have to be difficult, choosing from a wide range of options can be a real challenge. There are temporary and permanent coverages, all with different features, payment terms, and cash value returns. Term life business insurance is often considered as a cheaper option, although the coverage period is limited. Universal life insurance and whole life insurance, while typically more expensive, provide longer-term coverage. You may have a hard time studying all the options available if you are not too familiar with business insurance policies. A good insurance agent can explain all the options available to you so can choose the policy that best suits the needs of your business.

More time spent on your business

Small businesses are more susceptible to losses if any of the key employees leave the business, whether due to disability or death. This explains why most start-up businesses are encouraged to invest in a good business insurance package. However, having a small sole proprietorship or partnership enterprise can be demanding of your time and attention. This leaves you with very little time to research and select a good insurance package. By utilizing the services of a business life insurance agent, however, you don’t have to do all the dirty work yourself. An agent well-versed in business insurance and key man insurance can explain everything you need to know about getting your company insured, at rates you can well afford.

Easy compilation of requirements

Prior to the processing of your business insurance application, you will need to submit a complete set of documents. Failing to complete the requirements, which may include health and lifestyle details on your key employees, could very well result in your application being sent back, or denial of coverage. If you’re working with a trusted agent, he or she can review all the documents pertinent to the application, ensuring that you receive the policy you prefer at the best terms.

While applying  for business life insurance is easier nowadays through the internet, a trustworthy and competent insurance agent can help you choose a policy that is best suited to the structure and needs of your business.

The 3 types of key person life insurance

There are three types of key person life insurance generally offered by most insurance companies. There is term life insurance, universal life insurance, and whole life insurance. These different types differ in their premium payments, insurance amounts, interest rates and interest earnings, and coverage period. Term life insurance offers temporary coverage while universal life and whole life insurance policies offer more permanent coverage. Knowing which policy is most suitable for your business is therefore an important consideration.

Do you need term life insurance?

Term life insurance is one form of key person life insurance that offers a more temporary coverage, compared to whole life and universal life insurance, which offer long term coverage. Moreover many companies purchase the term life option since it is generally a much cheaper option compared to permanent policies. If you are looking for insurance coverage that lasts only up to a year, 5 years, or 10 years, or one that guarantees a fixed rate for a specific period, this form of insurance is ideal for you.

The need for more permanent insurance coverage

If you are looking for key person life insurance that is of a more permanent nature, there are options other than term life insurance. Universal life insurance is a more suitable option if you are looking for long-term coverage. One advantage in choosing universal life insurance is its low cost compared to whole life insurance. This policy offers adjustable premium payment arrangements, and as such, is considered to be a more flexible choice.

On the other hand, whole life insurance, also called permanent insurance, is meant to last for an entire lifetime. As long as premiums are paid diligently, full coverage is always guaranteed. You will pay higher premiums during the early stages of the policy so as to take care of increasing premium costs as the term advances. Although this insurance policy is considered to be more expensive than both whole life and term life, it nevertheless offers a fuller and longer term coverage, and also yields tax-deferred cash value over a period of time.

Although purchasing a key person life insurance policy has many benefits, knowing which type of coverage your business needs is just as important as actually buying one. Once you have a complete understanding as to why your business needs this type of insurance, you can start shopping for the right insurance policies based on the needs of your business.

Rushed purchase of a key person insurance policy

It’s virtually impossible to secure a good policy for your business when you’re trying to shop in a hurry. It’s important to understand that the normal procedure in obtaining a key man insurance coverage for your business can take anywhere from 4 weeks to 6 weeks. Thus, if you must secure a policy for your business, make sure that you allow for ample time for the processing period.

Lack of understanding on the financial justification requirement

A key man insurance coverage adheres to a financial justification requirement, wherein the insurance coverage amount is dependent on the realistic and calculated risk of loss faced by your company. Once you have applied for any type of business insurance policy, most insurance companies will match the coverage with the risk of loss associated with your business, prior to approval. By failing to understand this financial justification requirement, your business could obtain less coverage that you might have expected.

Failing to disclose important details on health and lifestyle

Health and lifestyle details are important in obtaining appropriate coverage on your key person insurance policy. These details will help you obtain a policy that is priced just right.

Choosing a policy that does not provide enough coverage

It is important for you to obtain a policy that will provide your business with the kind of coverage that it needs, taking into account the number of valuable individuals within your employ and the inherent risk of loss to your business. Good coverage should not only cushion your business from possible losses arising from the loss of an executive, a partner, or a skilled employee, it should also be able to cover the day to day continuity of your business operations.

Failing to obtain key man disability insurance

Although key man life insurance is a more popular option for many business owners, a key man disability insurance is just as valuable. You will never know when a valuable personnel might fall ill, becomes temporarily disabled, or permanently incapacitated. A key person disability insurance will protect your bbusiness in these dire situations.

Not getting the services of a reliable insurance agent

If you have no experience in shopping for key man insurance, you will most likely need the services of a competent and highly experienced insurance agent. Some business owners however fail to obtain the advice and expertise of an insurance agent, so they end up getting insufficient coverage, or worse, choosing the wrong type of policy.

Shopping for a good key person insurance coverage can take some time. By steering clear of these mistakes, you are assured of getting good coverage, so you can give your business the protection it needs.

Find out what you need

Although there are a number of companies offering key man insurance policies, it is important that you, the business owner, take out a policy that works best for the kind of business that you have or the number of personnel that you may need to insure. You need to determine who among your employees possess skills and knowledge which are valuable to the continuity and growth of your business. Compared to traditional life policies for example, a key man life insurance policy typically comes with a few unique provisions, including the “first to die” clause. Since this policy pays out upon the death of any of the founders or key persons within the company, but will no longer be applicable to the deaths of the other key employees, this policy is less expensive and therefore, a more practical choice.

Choose a reliable company

Some key man life insurance policies may sound promising, but being a responsible business owner, you also need to make sure that you are dealing with a reliable and competitive insurance company. Does this company have key man insurance experts who can accommodate you and your inquiries? How many types of business life insurance policies does this company offer? Is it possible to get a fast and accurate quote from this company, based on the insurance coverage that your business requires? An insurance company that is best suited for the needs of one type of business may not necessarily be a good match for you. Choosing a good insurance company is just as crucial as finding a policy that offers the best possible protection for your business.

Understand why you need a key man life insurance

Many business owners view the acquisition of a key man life insurance policy as an excellent business planning strategy. Since the proceeds of the policy will be paid directly to your business, you can use the amount for any number of purposes. Such purposes may include covering potential losses, covering the cost of hiring and / or training new staff, or in buying out the shares of the deceased employee. Share buy backs are particulary important in small to medium business partnerships and corporations.

Since getting a key man life insurance policy is viewed to be an excellent move both in short-term and long-range business planning, it is crucial for you to choose a policy that specifically addresses the requirements and unique structure of your business.

Why your business needs key man insurance

There are many solid reasons why your business requires this form of insurance. First, this insurance aims to compensate your business for financial losses which may result when  key personnel are no longer able to carry out their regular duties, whether due to health problems or death. Perhaps you are operating a business based on sales and marketing, and you want to protect your business from losses, in the event that any one of your top-performing sales people are unable to carry out their tasks as expected. Or it may be that you and your business partner perform distinctly different duties, and that the absence of your partner for any length of time will ultimately result in huge profit losses. By obtaining key man insurance your business is able to take care of potential losses even before they begin to occur.

Another reason why your company needs this form of business insurance is business continuity. If anyone of your key personnel is no longer able to contribute significantly to the productivity of your business, you will have to make sure that someone else is able to take on the position. This means that new people will have to be recruited and trained. Even if you plan on replacing a key employee with an existing employee within your company, this new employee will still need to undergo skills training. As a business owner you know that these measures almost always lead to added business expenditure. A key person insurance policy is not merely taken out to protect profits; it can also help your business maintain stability, even during the most uncertain of times.

Does my business need this form of insurance?

Although not all business owners take the initiative to take out key person insurance, your business may, in fact, be in need of one. This type of insurance is bound to benefit small to medium sized enterprises, since start-up businesses tend to depend on the expertise of only a few skilled individuals. Moreover, if your business caters to a niche market, and replacing a key person requires a long and complex process, the proceeds of a key person insurance policy will protect your business by providing added cash flow.

While getting a key man insurance policy for your business may mean additional expense, it nevertheless provides a secure cushion for your company, so that business profits and business continuity are insured, especially in the wake of unexpected circumstances.

Provide death benefits for your key employee

The proceeds of a business life insurance may be used to provide death benefits to a key employee who has died while in service. You may choose to insure as many key employees as you deem appropriate, taking into account the contribution of these individuals into the foundation, growth, and success of your business. In the process of selecting insurance coverage for these individuals, it is important to take into account the costs involved in replacing these people. This will help you ensure that your business is insulated from risks and costs associated with the loss of an important employee.

Business life insurance for business continuity

If a key executive, a partner, or an employee with a unique set of skills has died, your business may suffer from potential decline in revenue and profit. In the worst case scenario, business operations may come to a standstil.l You may need to train new people to replace the vacant position; and doing so almost always necessitates cash outlays. The proceeds from your business life insurance policy may be used to finance such activities, for the continuity and survival of your business.

Use the proceeds in purchasing shares

If the partners or shareholders within a company have reached an agreement that shares may be purchased by the business in the event of death of anyone among the shareholders and partners, then the proceeds of the policy may be used to purchase shares from the surviving family members of the deceased partner.

Retirement funds

Business life insurance may also be taken out in order to provide retirement funding to key employees in case that they outlive the period of the insurance policy. Even though your company will be offering separate retirement packages to your key personnel, the cash value of the policy may be used to supplement these retirement funds.

Provide income to surviving family members

If you, the business owner, meets an untimely death while the company is in operation, the proceeds from the business insurance policy may be used to help your family survive while business cash flows remain unstable. Business owners can take out business life insurance policies for themselves as well as for the key individuals within their business.

Whether you’re looking for a policy that lasts only up to 20 years or a more permanent insurance policy that offers flexible premium payment options, obtaining business life insurance or key man insurance is one long-term planning strategy that is benefical, both for your business and for your valuable employees.