Research indicates that most small and medium-size businesses collapse within a short time when a key figure gets ill or dies. These businesses can buy key person insurance to insure the life of the most critical person in the business. When you insure key people in your business, it is protected from financial loss when they get critically ill or die. Here are factors that you need to consider when choosing a keyman insurance.
Determine Your Key People
A key person is an individual whose disability, critical illness, or death could affect the business’s future income. There is that person or a group of people who you consider key in your business and should be insured. The professional could have special skills, own a huge stake in the business, or contributes heavily to its success.
Check to What Extent It Covers
The Key person insurance offers financial cover for a certain time after the key person gets critically ill or dies. You can use the policy to find a temporary replacement for your business or hire someone permanently. You can also use the policy to cover losses and debts in the business. In addition, you can use it as a guarantee for your business loans. However, there is some exclusion in the key person policy, such as suicide, misrepresentation, and fraud.
Check the Level of Insurance
Most businesses are unique, there is no standard amount of insurance you should pay. However, there are several approaches to calculating the amount of premium you are expected to pay. You can evaluate the person’s value to the business by summing the individual’s gross or net profit. However, all companies operate differently and might not follow this method. It is advisable to seek financial advice from a professional.
Consider Your Tax Considerations
When buying keyman insurance for your workers, you should classify it as a business expense because you will receive a deduction for all premium payments. You can also receive pay-outs with similar benefits when the employees are notified and agree in writing that you intend to take a key person insurance policy out on them, and your company will be the beneficiary. Your key people should also consent to prolong the policy even after they leave the business. Your business should meet these conditions before providing the keyman policy so that the pay-out is tax-exempt.
When you venture into any business, always consider taking a key person’s insurance because it provides security by ensuring the continuity of your business. Seek the help of an expert to assist you erect long-term stability for your business.