Have you heard of key person insurance? This is a type of policy that covers a business in the event of an important part of the team passing away. This is not to be confused with an employee insurance package. Employee insurance covers the family of the employees and works as a benefit that companies offer.
Key person insurance, on the other hand, is a tool to protect businesses whose continued success and existence rely heavily on a few key employees. This is a type of insurance policy that doesn’t have to be costly. Thanks to InsuranceHero and other sites like it, finding affordable key person insurance packages has never been easier. But is key person insurance something worth spending time on? Here are some of the reasons why the answer to that is “yes”.
1. Financial stability
It’s hard to define what constitutes a “key employee” in any specific terms. This could be someone uniquely qualified to deal with important equipment in your business, it could be a team member who has become the public face of your company across media channels, or it could even be the company’s current founder and CEO. In other words, it’s any employee whose sudden absence could shake the company to its very core, or even make the company unable to operate entirely.
One of the advantages of having key person insurance is that should something bad ever happen, the company will get a payout. That’s money that can be used to keep the lights on and the staff on payroll while management decides how to proceed. It gives the company breathing room, as well as resources used to hire someone new or find a way to keep going without that key person.
2. Investor confidence
One thing investors and venture capital firms like to see when analyzing a business is contingency plans. Key person insurance helps make sure the company they are investing in won’t go belly up due to a random act of bad luck, so it’s a good idea to have a good policy in place. Chances are, if you don’t have that type of insurance, you may be required to get it when looking for funding down the line anyway.
3. Continuity of service
One of the uses for an insurance payout is to ensure continuity of service. A cash inflow makes it easier to hire people and get external help to make sure you’ll be able to meet whatever contracts you have now. Depending on the situation, this may even allow your company to outsource tasks while you sort things out. This helps reduce the number of clients who jump ship during this period of instability.
4. Shares buyout
Having to buy back the shares of a business partner who has passed away can drain a company’s cash reserves, or even risk bankrupting the business entirely. An insurance policy like Hartford Business Insurance can cover part of all of those expenses, making the process painless. This helps the business remain stable, and it ensures that the partner’s surviving heirs can get their money without worrying over what that payout will do to the company their relative worked for.