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Benefits of a Keyman Insurance Policy for Your Business

insuring a key man

Key person insurance policy is a life cover for critical employees, owners, and essential executives who are needed to operate a company. Unlike in disability or personal life insurance, the business buys a key person’s policy and pays premiums. Then, if the covered person dies, the company is rewarded the insurance payoff.

The insurance proceeds can offset daily business expenses, settle debts, and supplement the lost revenues. In extreme cases, the money can be distributed to investors, closing the business and paying severance to employees. If you need to know more about taking insurance to cover a key person, you can check out UK Keyman insurance to understand it and find out the various providers available.

Here are the benefits of a keyman insurance policy to your business

It Can Offer a Tax-Free Lumpsum

provides a tax free lumpsum to businessAs a life policy owned by the employer, the benefit paid after the death of the significant person is tax-free, provided the premiums are settled with after-tax profits. It means that the business receives the full value of a policy. In addition, when key persons’ insurance value is accumulated, the company can use it as security to borrow a business loan.

It Stabilizes a Company’s Share Price

The key employee insurance policy helps to keep the market price of shares stable when the significant person dies. Typically, when the employee dies, the value of the shares will fall. However, when the investors know they are covered from any financial loss through the insurance proceeds, they will not offload their shares immediately. Also, the morale of the critical persons is boosted since they feel treasured. It increases a sense of belonging, leading to higher productivity and retention of a key employee.

It Stabilize the Value of a Business

stabilizes a company's valueThe keyman insurance protects a company’s valuation. For instance, when a company is up for sale, the prospective buyers will put a high value on the company when they know it has a financial backup to cover the costs of replacing a key person. The disruption of the availability of credit due to the death of a key employee seriously affects the business. Here, the compensation from the insurance company can help to guarantee loan repayment when a key man dies.

It Is a Flexible Plan for the Business

The amount of premium depends on your business and how much you can afford. Therefore, you need to shop around for rates from different insurance companies. Also, you can either buy a term policy or a whole life policy. It is recommended that you choose term insurance, although many agents push for a whole life policy. It has higher commissions and premiums but unnecessary to a keyman policy.