Why Staffing Companies Need Key Man Life Insurance
Did you know that the average American only has coverage equal to four times his or her annual income, but most individuals need 10-15 times their gross annual income? This statistic makes an even deeper impact if you consider the following: what would you do if one of your key business owners or partners was no longer a part of your staffing business? Makes you stop and think, right?
Most executives generally think to insure their property, business autos and other tangible assets, but tend to forget the most important piece – their key employees/owners.
Key Man Life insurance is “life insurance owned by a business entity on the life of a key individual that will, in the event of his or her death, offset a loss in earnings and provide the funds necessary to find, hire and develop a replacement. It’s designed to offset losses resulting from the death of a key person, such as reduced sales, interruption of a vital research project, flow of production or an impaired standing credit.”
There are a few different types of policies you can purchase, including:
- Term Insurance: Provides protection for a specific period of time (about 1-30 years) and generally offers a greater amount of coverage for a lower premium.
- Permanent Insurance: Provides lifelong protection and the ability to accumulate cash value on a tax-deferred basis. Premiums are typically higher than a term life insurance policy. In addition, there are a few different types of permanent insurance that you can consider: whole life, variable life, universal life and variable universal life.
When thinking about a life insurance policy, most people are concerned about the death benefit that would be received by the beneficiary(ies). Although this is an imperative piece, with the various types of life insurance options offered, these policies can play an integral part in determining your overall business financial strategy and how to possibly accumulate cash value over time.
It’s important for you as a business owner to constantly evaluate your business assets and build a solid financial framework that can help continue the legacy of your staffing business. Don’t let life insurance be the missing element!
Key Man Life definition – taken from IRMI – Glossary of Insurance and Risk Management Terms
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