Most common Denver Business Specialty Insurance questions from our clients
How do you determine the amount to insure a key person?
Calculating an employer’s expected financial loss normally requires the anticipated cost to recruit and train a replacement to be added to the estimated amount of lost business earnings resulting from the key person’s death.
What do you mean by the term “Key Person”?
Clearly, it includes employees and owners whose employment is important to the continued success of the business. Any person should be considered key to the success of the business if he or she:
- Makes a substantial business contribution
- Possesses critical information or knowledge
- Maintains and nourishes key contracts and relationships
What type of life insurance policy is best a key person?
As with all decisions to purchase life insurance, it comes down to needs versus budget. While Permanent Life Insurance offers an employer greater flexibility, a business for whom the premium for Permanent Life Insurance is too expensive should purchase Term Life Insurance. The preferred Permanent Life Insurance policy to meet life insurance needs is Universal Life or Indexed Universal Life. The advantages are:
- Increase or reduce the premium payment (or no payment at all) depending on the employer’s cash flow at the time the premium is due.
- Ability to take cash value withdrawals and/or loans on a favorable tax basis.
- Increase (with evidence of insurability) or decrease the policy’s death benefit to meet business needs.