Understanding Key Person Insurance​

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Regardless of the type of business you own or operate, it’s important to seek out financial protection for your company in the form of insurance. While liability insurance is an absolute must for any company, have you stopped to consider what might happen if a key stakeholder, owner or high-ranking executive died? Key person life insurance (also known as “key man insurance” or “key employee insurance”) is a type of life insurance and disability insurance policy that reduces the impact of devastating loss on your company or team.

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Tax Deductible Your Overhead Expense Policy has been designed to meet the requirements of Internal Revenue Service rulings which allow certain business and professional men and women who are sole proprietors, partners and stockholders/employees of a business to use premiums for the policy as direct business expense for tax deduction. This is based on current tax code.

The Options are Few  -  If you become disabled, what can you do?

*Close until you recover?

When you close your business temporarily, you risk losing your customers – and employees – permanently. Your customers rely on your goods and services. Your employees depend on their jobs for their income. Neither can wait on your recovery indefinitely.

*Hire a replacement?
Only you can determine who would best fill your shoes. But if you’re disabled, you mostly likely won’t be in a position to search for, hire or train a part-time replacement.

*Use some of your individual benefits to help pay business expenses?
Possibly. But as individual disability benefits are designed to help meet your personal financial needs if you become disabled, you may not be able to stretch those benefit dollars far enough to cover business expenses as well.

For example: Carol is a floral shop owner. Her gross monthly earnings are $12,000, her monthly business expenses are $8,000 and her take home pay is $4,000. Her individual disability policy will be based on her take home pay. At 60 percent of $4,000, she would receive a $2,400 monthly benefit – not enough to cover even half of her monthly business expenses. And that’s without taking her personal living expenses into account.

Sell your business?
This option may not be viable or profitable. An emergency liquidation sale rarely generates top dollar on your investment. And it leaves you with nothing to come back to when you recover.

Be Prepared
Insuring your ability to keep your business in operation is every bit as important as insuring your life, house or car. You have assets – but the solvency of your business enables you to retain them. No matter how comprehensive your medical coverage may be, not matter how much individual disability insurance you have, it’s important to make sure you’ll have money available to cover monthly expenses for your business if you become disabled.

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Business Overhead Expense Insurance provides benefits to help you cover fixed monthly business expenses if you can’t work due to a covered illness or injury. Expenses like:
 

• Employee’s salaries
• Rent
• Utilities (heat, electricity, etc.)
• Maintenance
• Taxes
• Interest (not principal) on business loans

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Key person insurance policies provide a death benefit to a business if crucial employees die or become disabled. Crucial employees may be classified as an owner or co-owner, partner, CEO or other executive. 

Personal life insurance provides benefits to family members or other loved ones after a death. Key person insurance pays a death benefit to the business, which can help ensure it remains functional and employees are taken care of in the aftermath of a loss.

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Langley Insurance & Financial Enterprise offers free, comparative quotes on our Business Expenses or Key Persons insurance from multiple insurance carriers so you can get the best possible rate.

Want to see how much we can save you? Just request a quote to find out