Key Man Insurance: Cost, Coverage & Providers

Cody Cromwell
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What Key Man Insurance Covers

What Key Man Life Insurance Doesn’t Cover

Life insurance is a popular financial tool among individuals looking to protect their estate. Where it really shines, however, is for key employees. When an employee has his key employee (‘key man’) employee insurance policy, he’s able to guarantee a salary for his family if anything should happen to him on the job.

If an employee has an accident or is involved in an accident that results in death, the financial payouts can be substantial. Understandably, many people shy away from this type of coverage.

Although the policy is attractive, there are gasps and potential pitfalls. One of the greatest risks is the fact that the coverage does not cover certain types of losses that the policy holder’s family might experience without his financial backup.

To take advantage of the key man insurance benefit, you need to ensure that you ask the right questions and find a carrier that can give you the right answers. A good amount of fraud does occur with this type of policy and by having the right questions on the table can go a long way to minimizing it.

Additional Limitations on Key Person Insurance

Policies that cover Key Persons usually have some limitations. The insured person must fall under one of these categories:

Employee of the employer and the employer must recognize at least one of the following:

  • Best or preferred employee
  • Top or star employee
  • Employee of the year
  • Employee nominated for service award

{1}. Dependent of the insured person covered by Key Person liability
{2}. Member of a couple that has been married for at least one year
{3}. Dependent of the spouse covered by Key Person liability
{4}. Dependent child of the insured under the age of 27

Key person insurance is the type of policy that usually is found in a commercial business. However, if you are a homeowner, there’s a small chance you could be considered as a key person. In general however, the only people able to get key person insurance are those who are employed in a professional business.

There are some disadvantages to getting key person insurance as well. Sometimes a person could be dropped for reasons that don’t have to do with the risk to the business.

The main disadvantage to key person insurance is its high cost compared to other types of business insurance. The insurance companies charge more for a key person policy because they view the person as a crucial part of the business who’s most likely to be at the site.

Key Man Insurance Providers

Key man insurance is insurance that makes you financially viable after losing your key men. If you are going into a new line of business your key men would be the people who need to be removed from the old lines of business. It would cover the transfer of these employees and assist your business growth.

There are two types of Key Man Insurance, Commercial Key Man Insurance and Marine & General Key Man Insurance.

Commercial Key Man Insurance exists to provide a new business with temporary key men. Commercial Key Man Insurance is a bridge between the point that a business is making a loss and the point that the business is making sufficient profits to be self‐sustaining.

There are the different types of Commercial Key Man insurance like; Construction, General and Marine.

Construction commercial key man insurance is temporary key men insurance that works best for construction workers which can be attached to a specific project.

General commercial key man insurances are best suited for temporary key men that can be attached to a permanent location or stationary equipment.

Policygenius

Who could use Key Man Insurance?
Key man insurance is a personal insurance that you take out on the assumption that your most valuable employee would not be able to finish his work even if he did not die.In simple terms, if your key person dies before his contract ends, you can claim the money that he would have earned from his contract.

If you give the most important position to your employee, it is best to take important insurance policy like Key man insurance as security in case of any unfortunate incident with him in the job. A person who likes to take cover for his employees can opt for key man insurance in terms of the coverage patterns.

Nationwide

Is the largest insurer of homes and cars in the world. It is the only company to pay out enough claims to have a uniquely comprehensive understanding of accidents. (Though its tail risks are said to be among the highest in the industry.)

Nationwide specializes in distributing claims. Much of its work is wrapped in yearly contracts, which is practically foolproof in terms of meeting insurance-industry financial goals. In fact, it is a favorite among regulators for fining companies that require too little underwriting.

Nationwide’s greatest success was in underwriting homeowners who, in the aftermath of the housing bust, took out new subprime mortgages. In large part, it gained control of this market by convincing states like California and Florida to allow direct mail.

What is key man insurance?

The term key man insurance is very misleading, as it’s actually called a supplemental policy and it’s available to both homeowners and businesses. It’s basically insurance that covers the loss if your main policy is destroyed by a hurricane, fire, theft, etc.

The way to get it is by buying a policy with an additional rider that covers things like a business’s a loss of inventory or office equipment, or if your house burns down.

Petersen International Underwriters (PIU)

The Petersen International Underwriters does business with the national and international insurance industry. The Company is well know for its commitment to making the insurance experience simple and secure …

PEIU is Southern California’s ingenuity provider for small and medium size businesses. PEIU is your solution for protection, restoration, and recovery.

Lieutenant Governor Gray Davis appointed the President and CEO of PEIU, Ernest B. Petersen in 1991. Petersen International Underwriters is a family owned and operated business now in the third generation.

PIU focuses on providing a variety of insurance to businesses in the California market.

The CEO of PEIU, Ernest B. Petersen, is a decorated insurance veteran of fifty-five years of experience. He was raised on a farm and educated in the local schools.

Petersen returned from World War II, in his early twenties, to the fabled company, Prudential Insurance Company of America. Before joining the ever-tightening unemployment lines, he entered the fraternity of insurance, and ventured into the fast lane, as an executive with a capital company.

His fortune advanced, and his quick success left him free to make social contributions too.

That was the time when he met Gloria at a Los Angeles Clubs. She was visiting Southern California from Brooklyn, New York. They connected immediately, and Gloria came to live in L.

Embroker

"Embroker" is not a licensed insurance agent, insurance broker, or insurance agent, and the information provided is not to be construed as insurance advice or recommendation. Embroker can only provide information about "Key Man" insurance issued by Embroker’s parent company and insurance carriers. Embroker is not a licensed insurance agent and not an insurance producer or broker. Embroker is not registered with the Insurance Duties & Taxes Department to advise or recommend action or inaction with respect to any policies, certificates, annuities, bonds or other obligations of individuals, associations or corporations. We are not an insurance broker, insurance agent, insurance producer or insurance representative. Products and services are based on Embroker’s current understanding of the subject matter. Embroker reserves the right to change or discontinue product offerings at any time without notice. Embroker disclaims any responsibility for and does not guarantee the quality of products or services.

Who Needs Key Man Insurance

Anyone that owns any valuable assets should have key man insurance in place. Having this type of insurance can protect you in the case that your key employee, who might be the only one who knows how to operate key equipment, becomes incapacitated and unable to help run the business.

The most obvious use for key man insurance is for family businesses where the eldest family member is the main caretaker of the business. Another common use for this type of insurance is in industries that employ highly experienced operators, such as a small manufacturing business. In these types of companies, the employee may know exactly what it takes to run the equipment, and if something happens, it would be difficult for the owner to find and hire another employee with the necessary technical knowledge.

Even if you don’t have key man insurance, you could still ease the burden on your key employee by bonding their health insurance plan with your company health insurance plan.

This would cover the cost of your employee’s health insurance coverage while they remain employed with your company for a specified amount of time.

Types of Key Man Insurance

There are two types of key man insurance for contractors, short-term key man insurance and extended key man insurance.

Short-term key man insurance pays your workers’ salaries while you’re having a problem.

Extended key man insurance also pays your workers’ salaries while you’re recovering from a problem. But extended key man insurance also pays you while you’re recovering.

The types of coverage that you can get through your insurance company will depend on the amount of coverage and the amount of time that you need to be out of work.

In addition to being able to provide coverage for key man insurance, you may also be covered for unemployment benefits, worker’s compensation, and health insurance.

Generally, policies are required to be renewed annually, but if you’re having a problem, the insurance company will want to cancel your policy and you will need to start the process of renewing your policy again.

Here’s an example of what a form for next year’s extended key man insurance might look like:

Term Life Insurance

For retired people: Life Insurance Costs

Starting a Term Life Insurance for non-working retirements Having Survival Amount for Human Life Term Insurance is a good idea.

From your point of view ,your life can go on and you can meet another good and pleasant one .

Workaholic than your retirement,retired people have to face in their life.

Having Term Life Insurance is a good and cheap way for you. Having a life term insurance will protect you from a death at any time.

Term Life Insurance Is a Good Idea for Prime Time Retirement but Purchasing a Long Term Life Insurance Is a Better Idea

For those who are accumulating money for their retirement. It will help you out if you suffer an unexpected out of the ordinary death reason.

Permanent Life Insurance

Today we have a lot of different life insurance products to choose from, and the whole purpose of life insurance is to protect your family’s needs in case of your untimely death. But the whole process of buying permanent life insurance comes down to figuring out which types of life insurance to buy because not all life insurance companies offer the same types.

The way insurance companies categorize their life insurance products is by level of insurance coverage, the amount of financial protection that the coverage provides, and the cost of insurance.

The levels of life insurance coverages are defined into three levels: level term, universal term, and permanent. Level term life insurance is the least expensive form of life insurance. Universal term life insurance offers the lowest rates of life insurance for seniors, but the premium is guaranteed renewable for the entire term. Gen X and Millennials are probably most familiar with universal term life because it is the most common form of life insurance. Level term life insurance offers the second lowest rates of life insurance, but the premiums are not guaranteed renewable. Level term life insurance is obtained by buying term insurance and paying the premium in its entirety, and the insured remains at the applicable level of coverage for the entire term of the life insurance. With short term and permanent life insurance, policy holders buy long term contracts of insurance and then later make monthly premium payments to extend the term of coverage.

Return of Premium Life Insurance

Life insurance is necessary to maintain a regular income to your heirs, you may want to temporarily boost your income to help pay your debts, to purchase a new house or to cover the cost of funeral expenses. Investing in a life insurance policy may also be considered when investment markets are low or you want to avoid the complications of an asset sale agreement.

You have the option of buying an Insurance Term Life Insurance rather than term Life Insurance without insurance coverage, cash value insurance, Universal Life Insurance or variable life insurance.

Universal Life Insurance is useful when you do not know what your life expectancy is. For example, most people cannot tell you what they will live to be and you may want to plan for your heirs’ financial needs. Variable Life Insurance is not intended to provide your heirs with a guaranteed return on their investments.

The oldest form of Life Insurance policy is a term insurance policy that covers a specified amount of time-usually only a few years-called the term. Once the term ends, so does the coverage. Sometimes term insurance can either be a preneed or a postneed policy. Preneed insurance insures families for burial expenses and funeral services. Postneed plans are based upon the valuation of the person’s assets at time of death. The assets are then valued at the time of filing the life insurance policy and typically paid out to the beneficiaries.

Key Man Disability Insurance

In general, Key Man Disability Insurance has a lower premium than a company’s own disability insurance coverage. This relatively lower premium often stems from the fact that many Key Man Disability insurance carriers offer lower premium rates for shorter term disability insurance compared to other carriers. If you think about the reason for this, it makes sense. Key Man Disability insurance typically provides coverage for a specific agreement period (e.g., 1 year). Because a company providing their own disability insurance over the course of 1 year costs them a certain amount of money, their premium rate is likely to reflect this fact.

Providers often compare their Key Man Disability insurance coverage in the same way to other types of disability insurance, such as Employer Disability insurance (or an LTD/Long Term Disability insurance policy). Employer Disability insurance has the higher premium rates, despite the fact that it traditionally provides only 2-3 months of coverage. Employer Disability insurance is most often purchased as a supplement to another forms of insurance rather than solely for medical or injury expenses incurred.

Key Man Insurance Costs

Being in business means that you’re also required to have key man coverage. Key man coverage is insurance in case one of your key people, or key people, misses work or is injured on the job. Key man insurance covers you at the expense of your business during the time of the incident in addition to some medical expenses.

The cost of key man insurance is much lower than owner’s liability coverage. Whereas the cost of owner’s liability insurance can be steep and high, key man insurance generally has a low premium in comparison. Therefore, depending on your needs, you may opt for key man insurance to avoid the burden of high key man a liability insurance rates.

Before you make any recommendations about your insurance coverage, you should make sure that your business also has business interruption insurance. Business interruption insurance helps cover expenses that your business may incur because you lost all of your income due to a covered loss. If you have a general liability insurance policy, business interruption insurance helps cover these expenses if you had no owner’s liability insurance.

Depending on your needs and resources at hand, you can decide what you want to protect the most: yourself or your business revenue.

Typical Yearly Key Man Life Insurance Costs

The cost of a key man insurance policy can depend on several factors, including your age and the amount of cover you want. If you have a young family, permanent disability coverage could be very important.

Most companies will charge an annual premium for key man insurance, but if you are paying less than necessary, you won’t be cutting your premiums down. You can, however, negotiate for a slightly lower premium.

That’s why it’s important to find the right policy that will meet your needs. While most policies will provide some form of critical illness coverage, there are companies that will provide a higher level of cover.

As such, there are a number of companies that offer affordable key man life insurance; only you can decide which option is best for you. It’s wise to shop around to find the right policy for you, and to compare different plans to ensure you’re getting the best deal possible. If you do decide you need to look for a new plan, you may want to get an idea of where rates fall.

In the accompanying table below, we have taken a look at the cost of key man life insurance and features for two key man life insurance companies, Prudential and Liberty Mutual. Although some of the figures we have listed are based on standard cover, you can see that there are some cost differences.

How Much Key Man Coverage Do You Need?

Managers can be a huge liability if they are negligent or incompetent. They can enable sexual harassment, poor training, use of inappropriate language, and generally make the workplace unsafe for their employees. Key man insurance is designed to provide coverage for the business owner when he or she is unable to continue running the business.

Typically, key man insurance is acquired so an owner, partner, or manager can hire temporary or interim managers or CEOs. It is known as the –key man” insurance because it provides the financial means to keep the business running and above water.

What is Key man insurance?

It is the financial strength provided by the insurance company, and it is usually to compensate for the loss of income from the profits of the business when a key man loses his position or becomes generally unavailable. To ensure that the replacement or temporary CEO is capable of operating the business successfully, the CEO of the company needs an appropriate salary and compensation package. Some are reluctant to do so, as they fear they will be sued if the business fails because of a temporary CEO.

Management liability insurance is also known as Managers and Officers Liability (M&O) insurance. The most common form of this insurance is the personal liability coverage, which is necessary to maintain a degree of business continuity.

Tips on Getting Key Man Insurance

Key Man Insurance, also known as Key Person Insurance, is a type of insurance which is designed to provide coverage to key persons in the event of accidental death, natural death, critical illness, disability, or dismemberment.

The key persons listed in the policy are generally the primary source of income for an individual. This person could be a partner, spouse, child, friend, employee, or any other family member who receives payment from an employer or business.

Key Man Insurance can be purchased by the family of the key person or the employer. Since an employer would not want to have to claim on an insurance policy solely for the benefit of a key person, nearly every employer will purchase Key Man Insurance as a benefit for all of their employees.

Obviously, Key Man Insurance is a benefit unique to the types of business that will employ a service worker or a tradesperson, such as electricians, plumbers, construction workers, teachers, doctors, and truckers.

Unfortunately, since the cost of Key Man Insurance can skyrocket depending on the circumstances, most employers (and families) don’t automatically purchase this insurance policy. They would rather pay the employee to take the time off from work to attend to the key person’s specialized care.

Weigh Your Coverage Limits & Terms Carefully

For people who own their own businesses and for seniors who value their income and assets, key man insurance is a smart way to protect their business, no matter how small, and provide some financial security for their families. Though it is a relatively new addition to the insurance world, key man insurance has been around for several decades in the industry. When it was first introduced, many people were skeptical about this type of coverage and its benefits. Today, however, key man insurance is more popular than ever, with many young people buying policies as part of their retirement insurance coverage.

With all of today’s advancements in medical science, what can key man insurance really offer? What are the benefits? What are its shortcomings? What are the essential elements and advantages of key man insurance?

Before we delve deeper into these questions, let’s take a look at what key man insurance actually includes.

What is Key Man Insurance?

If you own your own business, key man insurance is designed to cover your key employee. The insurance policy would cover wage loss, disability and unpaid vacation time. It would also help pay for training and productivity loss.

Key man insurance would be particularly beneficial for small businesses that made use of one or two full-time employees.

What are the Benefits?

Be Flexible & Adapt as Your Business Grows

There are many benefits to having key man insurance, and some of the top reasons businesses choose this type of policy are that they offer flexibility and adaptability. As your business grows or shrinks, changes occur and your unique insurance needs can change as well.

A key man policy can be adjusted to fit your business needs, including the selection of a key man. This type of policy allows you to select an individual to be listed on the policy, along with his or her skills, expertise, and position within the company. The individual selected can also be a partner, family member, or even an employee. As your company and needs change, you can easily select a new key man or change your overall policy coverage.

There are also several key man insurance providers that specialize in this type of policy. Some offer online policy options that can be made to fit your budget. Allowing you to make adjustments based on how you are doing financially. Many of these policy providers also offer policy options that can be customized based on your specific business needs.

So account for your budget and unique insurance needs, and work with a key man insurance provider who specializes in your industry and is flexible and adaptable.

Consider Including a Business Exchange Rider

When I first started working for Key Man, I had no experience with the personal insurance market, so, I wasn’t sure what to look for in terms of policies.

A big part of me wanted a policy that covered everything I had at home that I didn’t want to be without … my computer, custom furniture, and everything else I thought of as “important”.

I even went as far as to purchase a policy that was supposed to cover and protect my business and computer equipment. I now realize I got what I paid for.

The policy I chose fell short on important coverage, and the coverage options that were available were difficult for my company to manage.

When my key man service was 2,000 miles away, it was nearly impossible to manage. If I had a question, I was going to have to call the company rather than the person who had access to the equipment.

I realized I’d made a huge mistake. I decided to look into alternatives rather than continuing to waste all of my money on a not-so-great policy.

I’ve learned a lot about Key Man insurance in the past few years. Here are my best tips for finding a policy you’ll be happy with.

Structure the Policy Correctly

Premiums are contingent on the risk you want to take. When it comes to Key Man coverage, the more risk you take on, the higher the premium will be. Rate and policy provisions are only a small piece of the Key Man puzzle. You have to make sure you have a comprehensive one that is designed to take your real estate business to the next level. In order to do this, you need to distribute the costs of coverage across the various types of coverage you need. You need to think about what you want to cover, what you are willing to cover yourself for, and what you think you will be able to do.

You also need to make sure you have chosen the right options to cover as many of the risks as possible. After you have done all of the necessary cost and risk assessments and you have drafted a structured Key Man policy, you can enjoy the peace of mind that comes with knowing that you are protecting the people you care about most.

Key Person Insurance Frequently Asked Questions (FAQs)

Key person insurance (KPI) is a type of insurance that protects your business from financial loss due to the passing of a key employee (KP). If the key employee passes away, due to death, disability or other incidents, the company arranges for continued operations, allowing the business to continue. If this type of insurance is unavailable, the business must shutdown and potentially file for bankruptcy.

It is a specialized form of life insurance in which the proceeds go to the policy owner rather than the insured. It usually covers a range of short-term risks, including disability, terminations, medical to care for the policy holder and succession planning, or the process of taking over the business.

KP insurance is one of the few types of insurance that can be purchased as a standalone policy, but also can be added to almost any business or personal life insurance policy. This flexibility allows for seamless integration with your overall business and personal assets and liabilities. It can be one of the most cost effective forms of insurance and coverages available.

The entire industry is affected by economic and market factors, so the cost and availability of KP insurance can change as well. Here are some FAQ’s that you may have regarding KP insurance, as well as a little bit about the industry.

What if the person resigns with a key man insurance policy in place?

Unique Situation – What if the the individual in the key man scenario already has a key man insurance policy in place?

If the individual already holds a policy and resigns, the contract will usually be modified or replaced by the employer.

Let’s assume the following:

You are covered as a key man. You identify another employee who could assume the duties of your position. That employee is currently under contract with the same employer.

In this scenario, what happens to your insurance coverage?

The key man insurance policy has a finite time period (in most cases six months) that begins upon the last day you work for the employer.

It is your obligation to inform the insurance company or agent if you are no longer employed by the company within the first three days of leaving.

If the insurance company or agent has not received notification of your resignation by the third day, you are not covered by the policy.

If the company decides not to replace the other employee when the policy expires, the policy lapses. The policy is not renewed.

As of June 30, 2006, Pennsylvania law will require all key man insurance policies to provide coverage for a period of one year or one day to prevent an employer from locking an individual out of a job.

How do I get a key man insurance policy?

Can I deduct key man insurance policy?

Bottom Line

In your profession, you’re likely to develop skills, market abilities, and perhaps trademarks quite distinct from those of others in your field of working. But, at the same time, you work as a part of a larger group of people who all contribute to the success of your company. You can’t do the work of Key man insurance yourself. Without your role, companies simply wouldn’t function in the same way.

The same is true for insurance. No one can function as a sole insurance companies. Without all of their employees, companies cannot cover a range of risks.

That’s why there are benefits like life insurance, income replacement insurance, disability insurance, and key man insurance – to cover the loss of a single employee.

With key man insurance, you can cover the loss of your most valuable or cost-effective employee.

Key man insurance is available on a payroll basis and allows companies to cover you in the event you can no longer work, if you’re temporarily disabled, heath or disability, death or dismemberment (think drastic illness or vehicle accidents), or if you’re experiencing work place violence.