Is the success of your company dependent on its owner, founder, an innovator, or other critical individual? Would the future of the business be put in jeopardy if that person passed away?
If that’s the case, it could be a smart move to purchase key person insurance. (This coverage is sometimes referred to as key man or keyman insurance, key woman insurance or business life insurance.)
Key person insurance is a life insurance policy a company takes out on an employee it’s dependent on. The company pays the premiums and is the beneficiary of the policy when the person dies. The purpose of the payout is to help tide the business over the challenging period following the death of the key person.
In this article, we’ll reveal the top 6 providers of key person insurance and explain what you should know to figure out if this coverage is right for you and if so, how to get the protection you need at a fair price.
- 6 Best providers of key person insurance
- What is key person insurance?
- What is the purpose of key person insurance?
- What kinds of companies need key person insurance?
- How can the payout from a key person policy be used?
- What types of losses can key person insurance cover?
- How much does key person insurance cost?
6 Best providers of key person insurance
- State Farm: Best if you want coverage from a top-rated life insurance company
- The Hartford: Best for key person insurance from a stable provider
- Mutual of Omaha: Best for companies looking for term key person insurance
- Embroker: Best for comparing coverages through a single insurance marketplace
- Policygenius: Best marketplace for business and personal insurance
- Allstate: Best key person insurance provider customer experience
State Farm: Best if you want coverage from a top-rated life insurance company
State Farm is among the top-rated life insurance companies in the United States. This makes it a sound choice for purchasing key person insurance. The insurer is known for its high level of customer satisfaction, policy offerings, and the price of its coverage. You can get a quote online or be connected with a local State Farm agent who can help you determine the right level of coverage for you. State Farm’s policy is known as key employee insurance. State Farm is licensed to sell life insurance in all 50 states.
The Hartford: Best for key person insurance from a stable provider
The Hartford is one of America’s oldest companies and a solid, stable, and ethical insurer. The company is known for its Business Owners Policy (BOP), which provides most of the core coverages small businesses need. It makes it easy to add other coverages, including the added layer of key person coverage. You can get a free quote at The Hartford or go through an agent that represents the company’s products.
Mutual of Omaha: Best for companies looking for term key person insurance
Mutual of Omaha is another top-rated life insurance company that offers key person insurance. It typically recommends term life insurance for its key person coverage, rather than the more expensive whole life policies. You always have the choice to buy whole life insurance if you want the additional level of protection. The only caveat with Mutual of Omaha is that it’s not licensed to sell life insurance in all states, so you might not be able to get coverage from the firm.
Embroker: Best for comparing coverages through a single insurance marketplace
Embroker is an online business insurance marketplace that makes it easy for you to compare quotes from multiple insurance companies and select the best deal. You simply have to answer some questions about your business and the key owner or employee online. Within a few minutes, you’ll have quotes for key person coverage from several different insurance companies. If you need help selecting a policy, you can connect with a licensed life insurance expert over the phone. Embroker is licensed to sell the coverage in all 50 states.
Policygenius: Best marketplace for business and personal insurance
Much like Embroker, Policygenius is an insurance marketplace. It offers key person insurance from multiple providers, which makes it easy to compare coverages and costs. However, unlike Embroker, Policygenius doesn’t just offer business insurance, it sells personal insurance as well. Policygenius could be a good provider for business owners that want to streamline their insurance coverage providers. You simply need to fill out an online form to get a custom quote. Policygenius offers a best-price guarantee, so it’ll try to match the lowest price that you receive from another insurance provider.
Allstate: Best key person insurance provider customer experience
Allstate is another leading U.S. insurer. It’s a financially stable company with plenty of cash reserves available to pay out claims. Plus it has a remarkably high rating for its operations, customer service, and satisfaction with the Better Business Bureau.
Allstate currently has 113 million policies of all kinds in effect and has been in business for more than 85 years. It’s known for its constantly evolving business insurance options, cutting edge coverages, and innovative culture. The firm is willing to customize its coverage, including key person insurance, to meet the needs of most businesses.
What is key person insurance?
Key person insurance is a type of life insurance that a company purchases on the life of an owner, a top executive, or another person that’s believed to be critical to the success of the business. The primary qualifier for key person insurance is whether their passing would cause serious financial harm to the business. The company pays policy premiums and is the beneficiary.
What is the purpose of key person insurance?
Key person insurance provides a financial cushion if the death of a covered person would have a significant negative impact on a company’s operations and potential future success. The life insurance death benefit “buys” the company time to find a replacement person or to implement new processes, procedures, or strategies to save the business. The time could also be used to close down the company.
Interesting fact: Key person insurance is also offered as a disability policy that pays out if the person a company depends on is unable to work. The business collects the disability payments to help it recover from the incident.
What kinds of companies need key person insurance?
To figure out whether your business requires key person coverage, company leaders should work together to determine whether anyone working for the firm is irreplaceable in the immediate term.
For many startups and small businesses, it’s the owner who handles most critical business functions, such as doing bookkeeping, managing employees, communicating with key customers, organizing marketing activities, and more. Without the owner, the business can come to a stop. Another person who could be critical to the success of a business is a visionary founder or partner who is necessary for guiding the operation into the future.
In both of these cases, a business would benefit from key person insurance to give it time to deal with the loss and figure out how to move forward.
How can the payout from a key person policy be used?
The payout from a key person claim can be used to cover the costs of recruiting, hiring, onboarding, and training a replacement for the deceased individual. If the business believes it can’t continue in operation because of the loss, it can use the money to pay off debts, distribute money to investors, provide severance packages to employees, and close the business down in a smooth and orderly way. Key person insurance gives a business time to explore options, instead of having to declare bankruptcy immediately after the key person’s passing.
What types of losses can key person insurance cover?
Key person insurance can cover a company against a range of risks. Examples include:
- Protecting profits: It can help offset lost income from sales lost because of the death of a key person or the delay or cancellation of business projects involving them.
- Protecting shareholders or partnership interests: The payout from the policy can be used by surviving shareholders or partners to purchase the financial interests of the deceased person.
- Covering business loan guarantees or other banking obligations: In this case, the coverage amount is equal to the value of the guarantees or debts.
If your business could be at risk for these types of issues, securing key person insurance could be a smart move.
How much does key person insurance cost?
The cost of coverage depends on the size and nature of your business, the role the key person plays, their age and health, and the vulnerabilities the company would face if they pass away. The most common policy levels are $100,000, $250,000, $500,000, $750,000, and $1 million. It’s worth getting quotes for policies at different levels from several providers and compare the costs to find the best coverage at the most reasonable price.
Your costs will also depend on whether your company buys a term life or permanent life policy. In most cases, term life is cheaper.
- Term life insurance is the more popular and affordable option for key person insurance. Your business is covered if the insured person passes away during the term of the policy. Typically, you can purchase term life insurance for a period of up to 35 years, and you renew it when the policy expires.
- Whole life insurance, also called permanent life insurance, does not come with an expiration date. The policy remains in effect for as long as you pay the premiums. Whole life insurance is more expensive than term, but premiums go into a savings account. Because of this, the policy gains cash value that you can borrow against or withdraw money from.
An agent or insurance company rep can help you figure out which option is right for you and how much coverage you should get.