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Keyman Life Insurance


Is Your Business Adequately Protected?

One very important use of life insurance is to protect a business against interruptions caused by the loss of one of its key employees or executives.

A key person is any person in an organization whose contributions to the operations and success of the business is essential. This may be the company owner, a talented salesperson, or perhaps an individual with a specialized skill that cannot be easily replaced.

With a key person insurance policy, the business is the owner, premium-payor and beneficiary of the policy. In the event that the key employee dies, the company receives the proceeds of the policy which gives them the flexibility to continue operations.

Generally speaking, the primary purpose of key person insurance is business indemnification and to protect a business's credit.

Key-person insurance indemnifies a business; that is, it compensates a business for any financial loss caused by the death of a valuable key person. For example, the death of a key person may result in less liberal credit terms from suppliers; banks may be less willing to lend the business money; valuable accounts once served by the key person may be lost. The proceeds from a key person policy can be utilized to avoid some or all of these problems before they occur or to ease the financial burden they bring about.

Disruption of a business by the death of a key person can seriously affect a business's credit. Key-person life insurance, however, can offset this danger in two ways: as tangible evidence of business character and as a guarantee of loan repayment at the death of the key person.