Choosing a good business insurance coverage is a must if you are a responsible business owner; and one of the most essential forms of business insurance is key person life insurance. A key person insurance policy has many benefits. There are various types of key man insurance policies available, from term life insurance to whole life insurance, so choosing carefully should always be a priority for you when purchasing key person insurance.

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.