Key Person Life Insurance – What Is It and When Is It Too Late to Get It? 

In any business, certain individuals play pivotal roles in driving success, maintaining client relationships, and steering strategic direction. The sudden loss of such a person can be devastating. That’s where key person life insurance comes in. This type of policy can help businesses prepare for the unexpected and protect their finances and future.

What Is Key Person Life Insurance?

Key person life insurance is a type of policy taken out by a business covering the life of an essential employee, such as a founder, executive or top salesperson. The company pays the premiums and is the beneficiary of the policy. If the insured key person passes away, the business may receive a death benefit that can be used for various means, such as to recoup lost revenue or recruit and train a replacement.

Why Is It Important?

The loss of a key individual can disrupt operations, damage client relationships and shake investor confidence. For small and mid-sized businesses, this impact can be especially severe. Key person life insurance can provide a financial cushion to help the company stay afloat during a difficult transition.

Additionally, a suitable policy can also signal to employees, clients and stakeholders, such as lenders and investors, that the business is prepared for contingencies. In some cases, securing this coverage may even be a requirement for obtaining financing or entering into partnerships.

When Might It Be Too Late to Get Coverage?

Timing is critical. If a key person has already been diagnosed with a serious illness or is nearing retirement, obtaining coverage may be difficult or prohibitively expensive. Additionally, if a business waits until it’s already facing financial instability, insurers may view it as too risky to insure.

It’s generally advisable to secure key person life insurance when the business is healthy and the key individual is in good health. Proactive planning can help make sure that coverage is in place before it’s needed.

We’re Here to Help

At Freeman Insurance Services, Inc., we can help businesses in and around Albany, CA assess their coverage needs and secure appropriate key person life insurance. Contact us today to get started.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.