Starting a business is a stressful endeavor. There is so much to consider regarding basic operations and so many forms to fill out and papers to file. It is truly a wonder that businesses are able to get off the ground at all. If you are a new business owner, you know that insurance of all types is very much part of the equation in the development and opening of your business. However busy you are with the basic operations of business, you must take time out to implement a strategy to keep your business secure. To be sure, an essential ingredient to this security is taking out “key person” insurance (also known as Business Life Insurance).
Key person term life insurance is taken out on the life of the key executive or the business owner. All firms or small businesses depend on the key people or business owner to manage and keep the business running. These head people are critical for the success of the business and therefore the insurance is actually taken out for the benefit of the business. Businesses take out the policy on the key individuals and so the business also pays for the policy premiums. The monies that are paid to the business upon the death of the key executive or business owner allows that firm or business the time to figure out what direction to take. Those left to run the business can strategize as to how they can save the business. Will they hire a new head executive? Will they restructure operations? Will they need to eventually sell off assets or sell of the business altogether? What debts need to be paid? No matter the case, the monies paid out by the term life insurance buys a business much needed time to make the important decisions that need to be made.
What Value to Place on a Key Person
To be sure, any business operation would feel displaced upon losing its key person — especially when considering how to replace him/her with someone just as competent. In small firms, it is usually the founder who holds responsibility for keeping the books, managing employees, handling key customers and running all basic operations. Losing the key person leaves any company with much uncertainty and instability. There is no easy formula for determining the value of a key employee as each circumstance is unique. The company must consider anticipated profit losses, replacement costs and a compensation-multiple formula. These are typical methods of estimating a loss and subsequent policy value. The best thing to do is to shop for rates from several different life insurance agents as they can help you estimate how much of a policy to buy. You may also get term life insurance quotes online. Most agents agree that buying term life insurance instead of a whole or variable life is better as the premiums will be much lower.
Keep in mind that one-man operations do not need to take out key person term life insurance. If you are a business with zero employees there is no need to worry as your assets transfer to your family (family employees do not count). If your family depends on the income from your business, it is advisable that you take out personal life insurance.
You do not want to overlook the importance of an investment such as key person term life insurance. It can mean the survival or closure of your business legacy.