How Much Key Man Insurance Should We Buy?

Key Man Insurance

If your business depends on a specific person to make it profitable, Key Man Insurance can help protect you. This key person could be your best salesperson, it could be the person who makes the goods you sell and it could be you, the owner. Key Man Insurance is life insurance that can help your business survive the loss of a key employee. That is, if your key person dies unexpectedly.

Why you need Key Man Insurance?

We don't like to think of coworkers or employees dying, but a little planning can save your business from a catastrophe. Ask yourself this tough question: If a key employee were in a fatal car accident tomorrow, how long would your business survive? Will the sales leads you have last six months, a month, a week, or even less time? Does your business completely depend on one person to run at all? Would any money come in without this person?

Just how much Key Man Insurance should you buy?

Without leads from your key employee, sales will dry up. You'll need time to find a suitable replacement who can keep your business thriving. If your key person is a salesperson, review your key person's performance over the past 12 months. Pay close attention to seasonal changes in sales and average out your sales throughout the year. You can then estimate the income that you will need to replace each month. Multiply that by your best estimate of how many months it will take you find a replacement. Add a few more months in case it takes longer to find just the right person to hire for your business. The new employee will have a lot to live up to, finding him or her may not be that easy. Make sure you buy enough Key Man Insurance to cover this situation.

If business will come to standstill without your key person, you'll most likely need to buy more key man insurance. Estimate your monthly operating expenses and sales. Include production, staff salaries and delivery of your product and your monthly income. Now determine what your goal would be when trying to replace this key person. Will you look for someone who can replace the key employee, or find a buyer for the company? Estimate how long you think it will take to accomplish your goal and multiply it by your monthly operating expense and income number. This should give you a good indication of how much Key Man Insurance you should buy.

Have your estimates ready when you prepare to talk to a professional about buying a Key Man Insurance policy. Your local licensed insurance salesperson can help you. Your salesperson can give you another perspective on how much Key Man Insurance you will need to buy. Your salesperson can compare your needs to similar customers and give you a higher comfort level when choosing how much Key Man Insurance to buy.

With just a little planning, you'll ensure that your business will survive the loss of a key employee.