In 2017, the USA had nearly 6,000 insurance companies throughout the states, which makes it one of the largest markets alongside China and Japan. Albeit being one of the biggest insurance providers in the world, the discussion on life insurance policies in the USA is still met with a great divide. Some Americans think it is essential and there are still so many who think otherwise.

However, insurance policies not only cover a person’s health, but even businesses use insurance policies to protect the interest of the company and its employees. Such is the function of what is known as Key Person Life Insurance Policy.

What Is Key Person Insurance, and how does the Policy Work?

This insurance policy mainly focuses on the company’s interest by protecting vital employees. Most of the time, business owners are covered under this insurance policy. These key employees are given insurance for the time when they are unable to work for the company. This includes cases of death alongside other factors, and the necessary funds are shelled out by the policy to avoid loss.

The crucial step in this policy is the determination and selection of who should be the “key person.” Companies usually elect the owners, but there are also instances where high-level employees are selected. 

The company then pays the insurance of what is commonly known as “premium.” This premium serves as coverage for liabilities that may be incurred by the company in case of the key person’s death.

Unlike standard insurance policies, with a Key Person Life Insurance Policy, the company is the beneficiary which will receive the necessary funds. 

How a Key Person Insurance Helps Businesses

There is a reason why many companies opt to employ this type of insurance policy. While a business does good when the team functions well, employees who play a huge factor in keeping the company afloat are usually regarded as highly-valued.

As such, by protecting these employees, the company has a safety net to fall on, in case there are losses and liabilities incurred from an untimely death. 

For example, a high-level employee is a top-performing salesman who can close huge accounts. When he is covered under this policy, upon his death, the company’s loss in profit can be compensated through the plan. This will cushion the company’s loss caused by the early demise of a top salesman. 

Selecting the Key Person to Put under This Insurance Coverage

There are many factors to consider in selecting a key person. The following criteria should be considered.

• If the work that they do is directly equivalent to the profit earned by the company.
• If finding a replacement would be difficult or nearly impossible.
• If the work provided by the employee is highly in-demand.

It is in every business’ interest to reduce loss and earn revenue as much as possible. That is why individual employees should be covered under this policy to protect the company’s benefit. Insurance policies are certainly one of the best ways to make business management less taxing and complicated.