If you are a business owner, you may have an individual who is key to your success. There is insurance to protect you against financial loss if he or she is incapacitated, in three areas.
- Key-Person Life Insurance
- Key-Person Critical Illness Insurance
- Key-Person Disability Income Protection
Key-Person Life Insurance
Life insurance is usually the foundation of a key-person protection strategy. It provides an immediate injection of capital into the business precisely when needed—when a key person dies. At this time, the death benefit is paid to the company tax-free.
Renewable Term Life Insurance is usually the most economical option over the short-term. In certain circumstances, permanent insurance may provide better protection when coverage will be needed over a long time frame.
Key-Person Disability Income Protection
Disability insurance can be used for two purposes in a key person context:
- The provision of a continued salary to a key person that becomes disabled, usually until the earlier of age 65, or recovery from the disability.
- Owner-managers can purchase insurance that provides continued payment of office expenses and salaries during the period of disability, usually for a limited time period.
Key-Person Critical Illness Insurance
Critical illness insurance provides protection in a situation where a key person is afflicted by a specified disease or health problem that does not necessarily render them disabled but nevertheless affects their desire or ability to work. Depending on the policy, this insurance coverage can pay a lump sum, or an income payable to the business, to help cover losses created by the absence of, or lower productivity of the individual.