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What are the Benefits of Key Man Life Insurance

By | Hannah Boothe

Most businesses collapse after the death of their founder or essential sales persons. Research shows the demise of a founding member decreases a company’s sales by 60%, leading to job loss. Such high figures prove the necessity of protecting your business against the death of a key person.

Critical person insurance is a policy that safeguards a business against financial loss if a key employee dies. A company will pay premiums depending on the value of the employee. If the vital individual dies, the insurer will compensate your business to shield it from monetary loss. The article discusses the top gains of critical man insurance.

1. It Pays for the Recruitment and Training of New Workers

The death of a key person needs you to look for a competent individual to fill the position. You might spend a lot of cash when hiring and teaching new employees.

Key man insurance helps the company to replace skills if an essential employee dies. You will receive funds from the insurance firm after the death of the crucial worker. The money will help in the recruitment and training process. Thus, you can avoid unplanned expenditure by buying key man insurance.

2. It Helps with Future Financing Needs

Many financial institutions must confirm business continuity when loaning an entrepreneur. For this reason, a bank may need a potential loanee to have key person insurance.

Purchasing key person insurance will prove to lenders that your company can continue after the death of its founder.

A bank knows the loanee will get funds from the insurer if anything happens to their key person. Thus, you could borrow an unsecured loan from a financial institution when you have key man life insurance.

3. It Helps Avoid Taxation

Nothing worries business people more than imagining their compensation is tax-deductible. If the IRS deducts a settlement, the beneficiary gets less than the anticipated amount.

Key man insurance is tax-free, making it a perfect option for your business. You pay premiums using after-tax money, exempting them from taxation during compensation.

However, the government can tax key man compensation if you sell your key man life policy to another party. The IRS will treat such income as tax-deductible.

4. It Covers Losses Associated with Stalled Projects

Primarily, the key individual oversees most projects in the organization. When such persons die, the project could stop for some time leading to revenue loss for the company.

Key man life insurance ensures your firm will not destabilize because of stalled projects. The money a business will get from the insurer after the demise of a key individual can cover the losses. It gives the new management time to get up to speed to ensure the projects continue.

5. It Helps Pay Investors

The loss of the founder of a business could risk posing a risk to its survival. People who have invested their money in your business want to be sure it is secure. The only way to assure investors and shareholders their finances are safe is by securing a key man life insurance policy.

If the management decides to close down the business, they could use the compensation to pay investors.

Depending on the value of the premiums, the settlement could be enough to get every investor their money. Thus, investors can be confident their resources are safe when the key individual in the company dies. However, the compensation process’s simplicity after a crucial individual’s death depends on the policy provider. For this reason, you must get a key man life insurance quote from a reputable insurer.

6. It Enables a Company to Settle Outstanding Debt

Most enterprises borrow money or buy goods on credit to finance their operations. After the death of an essential person, a business may see it fit to offset all debts.

Your business may use the compensation to pay debtors without financial challenges. The management may agree on the loans they should pay first to avoid business continuity issues.


If you want your business to live beyond the death of a crucial employee, a key man life insurance policy is a must-have. With the policy, you will get a settlement after losing a crucial person in the business. You have the freedom to use the money whichever way you want to ensure business continuity. Thus, key person life insurance is a worthy investment for you.

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