Disability Insurance Articles
Key Person Disability Insurance And When It May Be Necessary
2010-09-07
A key person disability insurance policy is purchased by a business to safeguard the financial stability of the company if a key employee becomes disabled. The benefits of a key person disability policy go to the company if the person they are insuring cannot perform the duties of their position due to a disability. These funds can be used by the company as they see fit to ensure the strength of the business.
A key person in a company may a partner or someone who has important relationships with clients or contacts. He may also be the person who serves the company's important clients, has knowledge vital to company operations or performs other crucial roles. When a key person is no longer there the company has to try to maintain relationships, continue operations and handle public relations.
A key person disability policy is not a standardized plan. Most policies are customized for the company in conjunction with the insurer. The policy proceeds may be paid as a monthly benefit, usually from 12 to 24 months. It is assumed that the person will return to work or be replaced within this time period. The other option for payment is a lump sum. Usually this benefit is not paid out until 12 months have passed during which the employee cannot perform their job and has not returned to work. At that time the proceeds will be paid to the company.
The amount of the benefit is set at the time the disability insurance policy is purchased. The items considered are the cost of replacing the employee and how much income the key person brings to the company, as well as the cost of continuing to pay the salary and benefits of the key person while they are disabled. The insurer will ask for financial information from the company to substantiate the numbers that are given at the time the policy is being initiated.
When a company is making the decision to buy a key person disability policy, there are several factors to consider. The number of key people that would need to be insured should be decided. Then a time period should be estimated to replace that person and train the new person and what cost should be tied to that. Figure out how much the person contributes to the company's income and what other consequences would come of the person being disabled. Of course you must consider how much the company can afford to pay in premiums for a key person disability policy. This planning will help the company to find the right disability insurance policy and to plan for the financial success of the organization.