What is Key Person Insurance?

Massachusetts businesses that heavily on a single person must consider what the consequences would be if something happened to that person. Should an essential partner or employee be unable to fulfill their role, business operations could be slowed, suspended or even permanently halted in certain situations. Key person insurance may help businesses protect themselves against this sort of risk.

Key person insurance is specialized commercial insurance for businesses that rely heavily on one or a few people. Because this is such a specialized insurance product, businesses should work closely with a specialized insurance agent when choosing coverage. A specialized agent will be able to help businesses determine who should be covered by a policy and how much coverage ought to be purchased.

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What Protections Are Available Through Key Man Insurance?

Whatever protections key man insurance affords are typically limited to only the person(s) listed on the policy. This helps eliminate ambiguities that could otherwise arise over a person’s essential or non-essential role. Whoever is deemed essential to a business should usually be listed on the business’ policy.

For the persons listed on a policy, the insurance normally provides three distinct coverages:

• Standard Life Insurance, which may cover death of the insured person
• Trauma Insurance, which may cover some injuries and disabilities
• Total and Permanent Disability Insurance, which may cover other injuries and disabilities

The standard life insurance that’s provided is normally much like term life insurance, in that the policy usually pays predetermined death benefits and provides coverage for a specified duration.

As is the case with many insurance policies, the exact protections that a given key man policy provides can vary.

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How Can Businesses Spend the Funds Awarded from a Key Person Claim?

In the unfortunate event of a key person policy claim, the funds paid are typically sent directly to the business. There generally aren’t restrictions on the use of funds, but many businesses that receive a claim payment use the funds for one or more of the following purposes:

• Settle accounts payable and maintain employee wages during a short-term absence
• Lower short-term debt during a short-term absence
• Find a replacement for someone who’s permanently absent
• Cover costs associated with closing and/or selling the business
• Give financial investors returns during a short-term, long-term or permanent closure
• Award severance packages to employees and pay contractors any due wages

How Can Businesses in Massachusetts Get Key Person Insurance?

For help insuring a key partner or employee, contact the independent insurance agents at The Feingold Companies. Our Massachusetts agents have the expertise necessary to help you find key person insurance that’s suited to your business needs, and we can recommend the best policy regardless of what insurance company offers it. With our assistance, you can be confident that your workers and business are both well protected.