Key Employee Life Insurance
For a small or even mid-sized Florida business, one or two uniquely valuable employees may well serve as the lifeblood of the business. When employees of this nature possess truly unique skills that make it hard to conceive of the business thriving without them, a Florida business would be wise to consider obtaining key employee life insurance.
What Is Key Employee Life Insurance?
As the literal reading of “key employee” implies, this form of insurance helps a business safeguard against the financial harm that could arise if a key employee passes away.
This form of insurance can be a valuable safeguard for small and mid-sized companies that depend on one or two employees to such an extent that the employee’s skills are largely irreplaceable. Section 627.404 of the Florida Statutes expressly states that a Florida business entity has “an insurable interest” in the life of any “owners, directors, officers, partners and managers of the business entity or affiliate or subsidiary.”
However, the key employee(s) that a business wants to insure must consent in writing for a business to purchase insurance for the key employee. Here is a closer look at how key employee life insurance works once a key employee is identified and their consent is obtained.
How Key Employee Life Insurance Works
The life insurance policy owner of a key employee policy is the business itself from a legal perspective. The business then effectively purchases life insurance for a key employee or employees.
From the moment that a business pays life insurance premiums to the insurer, a business will then be covered in the event that a key employee passes away. When a business has purchased life insurance for a key employee and paid premiums on time, the unexpected passing of the employee will ensure that the business is paid the proceeds of the policy.
Effectively, it is simplest to think of the business as both the policy’s owner and beneficiary of a key employee life insurance policy.
Selecting a Key Employee to Insure
Many businesses considering key employee life insurance may wish to consider insuring the owner of the business. If a business owner passes away, business plans and company goals can change in an instant. Worse, the company’s ability to secure financing may prove difficult as well. As such, an owner is a primary consideration for key employee life insurance.
Important directors, managers or even top sales personnel could warrant a key employee life insurance policy depending on the structure and size of the business. Any business mulling these options would be well served by discussing their options with an insurance agent or broker with experience with key employee life insurance policies.
Choosing the Ideal Key Employee Life Insurance Coverage Amount
Since all businesses have their own unique financial circumstances, there is not a one size fits all approach to purchasing key employee life insurance coverage. That said, there are several helpful strategies that can be implemented to help the business make this important decision. One valuation approach is to factor in all the costs associated with finding a replacement employee.
The types of replacement cost factors to include in an objective assessment include:
- How long will it take to find a replacement employee?
- What is the expected duration of replacement employee training?
- How much revenue loss is expected during the replacement search and training process for a new hire?
These are just a few of the many considerations a business must keep in mind when making the decision to obtain life insurance for a key person at the company.
Key Life Insurance Policy Attorney J.P. Gonzalez-Sirgo Offers a Complimentary Consultation
If a key life insurance beneficiary has passed away and the insurance company is stonewalling, lowballing, or denying your claim, it is advisable to consult with an experienced life insurance attorney to review your options and to ensure that your legal rights are protected.
You can reach Life Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].