While there are several insurance policies you can take out for your business, a key person life insurance policy is a more specific type of business life insurance that you obtain on the life of a key employee, a partner, or an important executive within your organization. This type of business insurance is also known as key man life insurance. There is a world of difference between a key man life insurance and simple business insurance, although both are essentially used to protect your business from losses arising from unforeseen circumstances.

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.