Top Ways Key Person Term Life Insurance Policy Save Your Company
by Mashum Mollah Insurance 10 September 2019
The key person life insurance policy is a kind that is used by companies having a particularly important person on whose presence, skill set, and reputation the entire company is dependent on. The demise of a person like this would make it difficult to run the company. Key-person life insurance isn’t for every company, like the ones where you are the sole proprietor. This type of insurance is customizable which means you can tailor it according to the needs of your company.
Given below are top ways in which key person term life insurance policy can save your company –
Paying off Debt and Continuing the Company
If your company has key person insurance, it will provide you with enough funds depending on the type of coverage you have chosen, to pay off the debt that the death of your keyman may have put on the company. Additionally, you can even pay investors with the fund and make proceedings for someone new to take over or alternatively change company policies, thus preventing the company from shutting down.
Improves Chances of Getting VC Financing
Most Venture capitalist (VC) firms need a key person life insurance while issuing the first round of financing. It ensures the VC that they are investing in a safe firm even if the most vital employee passes away and allows them to recover a share if something unfortunate happens.
Company is not Under Obligation
If a key person resigns before the end of the coverage period of the insurance, the company would not be forced to pay the premiums of the employees not working under them anymore. The company owning the policy may cancel or stop making payments at any time due to any reason.
As per law, any company investing in key person insurance may demand the premium payment to be deduced for business expenses. The benefits extend to the pay-outs as well. However, that depends on several conditions as applied by the tax department. If any of those conditions are not met before the key person’s term Life Insurance policy is issued, the tax-exempt cannot be made.
All key person insurances don’t mature after the demise of the person. Sometimes a partial pay-out is made to take care of the healthcare costs of the person.
If the key person was a major shareholder of the company, the partners who are alive can use their insurance to buy his stocks from the estate or his heirs. It is beneficial to the shareholders as they can continue to have full control over the company while the key person’s estate or heirs are fully compensated.
Cost-free with an Extra Incentive for the Employee
The premiums and beneficiaries are paid by the company, and it receives the pay-outs too. The key person chosen has to make no investments in the policy.
If whole life insurance is invested on the key man, the cash value that builds up can be given to the key person if he leaves or to his estate or heirs if he passes away. Since it grows over time, it is an add-on reason for the key person to keep working in the company.
Many businesses fail to utilize key person life insurance. You to keep in mind that anything can go wrong under certain circumstances, due to which the key person may not be able to continue in the company. This insurance is designed to prevent the company from going bankrupt or closing down. The future of the company depends on choosing the right key person life insurance policy.