Take Out Life Insurance on Your Most Valuable Employees
While it is wonderful to have a truly indispensable employee, one who seems to know everything about the company and the position he or she is in, it can be a liability as well. What happens when that person is out for a day, or a week or even longer? If the office comes to a standstill then it may be time to consider key person life insurance. This protects the company from expenses incurred should this valuable employee pass away, leaving a large whole in operational efficiency.
With this type of insurance the company takes out a life insurance policy on the employee, with the company as the beneficiary. The amount of the policy is determined by how much it would cost to recruit and train the new employee, the amount of disruption to the companys operations and other factors. Payment would only be in the case of death, and coverage would cease if the employee leaves the company for any other reason.
The advantages to key person life insurance are numerous. The transition period may be quicker and less expensive with coverage, and vendors and customers may be more reassured about the company’s continuity. Most importantly, this coverage compensates a company for a major loss of institutional knowledge and helps it get back to full strength.