What Is Key Man Insurance? Worth It? Premiums & Benefits

What is Key Man Insurance?

Key Man Insurance is a policy that is essentially life insurance on an employee of a company. Often times higher or senior employees, however – some times the policy is purchased on just average employees as a risk vs. reward policy to mitigate losses from previous and replacement, training and investment.  Obviously the policy can have other uses..

Is Key Man Insurance Worth it?

The insurance really needs to be broken down by the senior employees of a company or purchaser / business owner.

You need to calculate cost of the insurance after you determine how much insurance would be needed in a situation to replace a key person at a company.   Often times the worth isn’t determined until the insurance is used, but their is a safety net that is completely worth it in situations where someone can’t be replaced easily at all without spending a lot of money.

Some companies will lose one employee and the cost to the company to re-hire, train and offset additional costs from losing that employee can go into the hundreds of thousands of dollars or even more.  Depending on the position, payouts from any benefits to that employee, new hire payments for stock options or incentives, new training costs, etc…

My personal situation is different, but I should explain it.

I created a some what successful internet marketing company and there is one problem I run in to.  I am a married man with a company that would need a new key leader in the event I pass away to help manage the business to provide quality leadership so income can continue for my family in the event I pass away.  This isn’t a large company, however – I can foresee issues if there is no money sitting to hire key help in the event I am gone.

My concern is this, selling the business would be the best option without a new leader.  Ultimately the business model I am in is able to obtain recurring revenue that’s very valuable – without the correct leader the business would need to be sold costing my family long term.

I also spent time lining up potential candidates that should be approached if I were no longer here.  Since I know the business personally and have met many other individuals in this niche – I was able to put together a list of people I would want to take over that could run the business effectively.  The problem I run into is that most of the individuals I would want to run the company are pretty successful in their own lives.  So it would be very difficult to take away valuable equity in the event I pass away to hire a qualified leader.  With a Key Man Insurance policy I am able to have money for a sign on bonus and a more valuable performance bonus along with pay that’s good enough to lure them in.

Joel McLaughlin
Joel is the owner of Dataflurry.com an Internet Marketing agency.  A large number of our clients are Law Firms and individual Lawyers.