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Key Executive |
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Key person insurance, sometimes called key man insurance or key executive insurance, is designed to protect a business in the event of the death of an executive or key team member who makes a significant contribution towards the profitability or stability of the business. Buying key person insurance can ensure that a business plan is carried on even if a key executive dies. Key man insurance benefits replace lost revenue or fund the search for a replacement executive. |
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How much does key man insurance cost? — Costs range from hundreds to
thousands of dollars per year. Premium costs vary, in large part,
according to the covered individual's age. If the exec in question is
fairly young and in good shape, costs can be fairly low.
What is key man insurance? — It's essentially just a basic life
insurance policy for anywhere between $500,000 and $5 million. Usually,
they're 10- or 20-year term policies.
A popular twist on key person insurance is called "first to die." This
type of insurance pays only for the first death in a multiple person
policy, and thus, is much less expensive than having individual policies
for each key person. Plus, "first to die" policies allow the survivors
to take out a subsequent new policy without needing to prove their
insurability all over again.
Even if you are not being asked to buy key executive insurance by your investors, it can make sense in some cases. Think about what would happen if you or one of your business partners passed away. If the situation would be dire, it may make sense to insure against it. If it would have little effect on the business, there's no big need to purchase a key person policy.
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