Key person insurance, also called key person cover or key man cover is a very widespread business insurance product. This kind of insurance policy offers financial protection to a business when an executive who can’t be easily replaced without the business suffering severe losses in the short term dies or is found to suffer from a terminal illness.
Key person insurance therefore is very much like a life insurance. The difference is that the company itself receives the payoff and pays the premiums. The key person covered is usually the founder, a top-level executive or any collaborator which has been determined to be irreplaceable.
If this key man (or woman) passes away or finds himself or herself unavailable due to some very serious disease, businesses benefitting from a key person insurance will receive funds necessary to keep sustaining the business until a proper substitute is found, honour debts, distribute funds to the investors, or pay the severance pay to all employees so as to close the business in an orderly manner.
This kind of insurance product is therefore particularly indicated for businesses which depend on the personal performance of some specific men and women to keep fulfilling their operations. Businesses like clinics, medical practices, small consulting firms, or proximity independent small shops will benefit from key person insurance plans more than others.
On the contrary, key person insurance can be useless if the key person is the sole employee of a business.
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