KeyMan Insurance– For Small Businesses
KeyMan Insurance is an important form of business insurance most essential for the survival of small businesses in contingencies. A small business enterprise usually comprises of the owner or founders, if there is more than one in number, and a few important employees and others who work in the concern. In such small business firms, it is usually the owner/s or a key person who qualifies for the KeyMan Insurance.
In small business firms, KeyMan Insurance plays an important part, because it provides the much-needed cover and monetary relief to the company on the death of a person who makes the business work. The amount from the insurance can be used to keep the business running till a replacement is found or close the company down in an orderly manner.
The insurance cover is intended to protect the business and keep it running. The key person on whose name the policy is taken, however has no claim on it. This type of insurance is only to provide a safety net and mitigate the monetary risks involved. This insurance is most suitable for small businesses because, such ventures solely run on the vision and unique skill sets of the owner or key employees whose absence could lead to closure of the business.
Why is KeyMan insurance crucial for small business setup?
If the success of your business venture is dependent on the vision, experience, knowledge and skill of a person/sthen
My Key Man Insurance should be a part of your business continuity and succession plan. The absence of this person could affect your business and close it down. With the help of KeyMan Insurance, the following important tasks can be performed to mitigate the losses
Pay off debts and employee dues, if any and protect the assets of the companyKeyMan Insurance is a type of debt protection. Small
companies usually have mortgage on facilities and real estate. There may be a few dues on equipment too. In the case of death of the key person, monetary arrangements must be done to perform all the above-mentioned tasks, so that, the day-to-day operation of the business continues smoothly.
Restore the creditors’ or lenders’ confidence that the financial position of the company is still stable
This is very crucial for a business to survive. Banks and other lending institutions require the business owner to maintain adequate insurance coverage to fulfil the obligations. In the case of death or incapacity of the key person, it is this insurance that may help in timely repayment of lenders’ dues and provides the assurance of stability in the functioning of the business.
Pacify employees and reassure investors and customers that the company will continue operating smoothly
While investors and employees may be sympathetic in the case of death or incapacity of the key person, their continued support will be ensured if their financial dues are compensated from time to time. It is therefore essential to maintain enough revenues and KeyMan Insurance amount can ensure that sufficient funds are made available until revenue inflow is back on track.
Key person insurance paves way for hiring and training a replacement
Hiring and training a recruit to take the place of the key player is not only difficult but also crucial to the survival of the business. In addition, it can be an expensive task too. When the absence of a key person affects the entire working and survival of a business, it is essential to find a replacement who can takeover smoothly.
Helps maintain a smooth cash flow
Small firms usually depend on a continuous source of short-term loans and finances to keep the business up and running. The absence of the key person could place the entire setup in jeopardy. A smooth cash flow is possible if the firm is key person insured.
Types of KeyMan Insurance:
KeyMan disability insurance: This type of insurance enables the company to function in the case of the key person becoming temporarily or permanently disabled.KeyMan Term life insurance: This insurance provides adequate financial cover to a business to survive the death of the key person. Term insurance does not have any accumulating cash value. It is usually low in cost and for a shorter term. KeyMan Cash Value life insurance: A few business firms use this insurance to protect the company and the accumulating cash value as per the policy, to acquire the deceased’s equity share in the policy and pay off any debts that are owed to him. Most small business firms generally go with term insurance and a disability cover because of the greater benefits. Cash value insurance is deemed best if there are a group of key players eligible for KeyMan Insurance, as in the case of partnership firms.