Cheap Term & Cash Value Insurance Options for Key Man Life Insurance Needs

How key man life insurance can protect your business:

Businesses can also benefit from life insurance policies. Because the endurance of your business may count on the continued service of a key employee, businesses can buy key man life insurance to insure the contributions of key employees.

A key employee is a person who possesses certain knowledge or skills that are vital to a business. The loss of such an employee would land an employer in financial hardships.  Key employees are those who are fundamental but not easily replaceable, due to who or what they know.

In order to understand why one would need coverage for a key man, just think of the expenses that would follow the loss of a key employee: recruiting, training, creating business relationships from scratch. This is all, understandably, very time consuming and expensive. The company may also need to be reorganized in order to make up for the loss of the employee. The benefits provided by a key man insurance policy can afford resources for recruiting, training, or building business relationships.

Affordable key man life insurance options:

For key man insurance coverage, you can essentially use any life insurance product available.  Because of this freedom, the most affordable option by far is term life insurance.

Term life insurance coverage lasts for a pre-determined period (about 5- 30 years) and the death benefit is paid only if the insured passes away during the coverage period.  The short-term nature of this type of life insurance is suitable for key man life insurance needs because most businesses will only rely on a key employee for a few years.  For example, after a key employee retires it would not be reasonable to keep a life insurance policy on them.  Term life insurance offers the largest death benefit for the premium amount.

Retirement benefits via key man insurance:

While term offers cheap key man life insurance, it may not be the most cost effective plan if additional expenditures are going to be considered. Benefits are often offered to key employees, in order to ensure their continued loyalty, such as retirement plans.  If you plan to provide a key employee with retirement funds, buying a more expensive key man life insurance policy and using it to fund a retirement plan will reduce expenses while serving dual purposes.

Cash value life insurance policies can cost more than term insurance, but they have the ability to fund a retirement plan when life insurance coverage needs are no longer necessary.  Unlike term life insurance, cash value life insurance policies can be in effect for longer than a term of 30 years. As long as they are properly maintained, they will accumulate equity.

When you are ready to claim the equity that has accumulated, you would cash in the key person life insurance policy and use funds to invest in an ordinary retirement plan or simply give the employee the amount in full (also known as "surrender”).

Cash value life insurance can be found in two forms: whole life insurance and universal life insurance.  The growth rate in whole life is guaranteed, while the growth rate of universal life depends on the policyholder's payments and on varying interest rates.

Cash value life insurance policies also have an added benefit if that key employee decides to quit or retires unexpectedly. Instead of giving that employee the value of the policy, you can keep it to cover the costs of replacing the employee or reorganizing the business.