key person disability insurance
What is key person disability?
Key person disability insurance is designed to protect the business from significant loss due to the disability of a "key employee." While this individual might be covered under worker's compensation or individual disability insurance, the business also needs to be protected. The benefit provided by a key person disability insurance policy can be used to hire a new individual to temporarily replace the disabled employee or simply cover the financial loss of the disabled employee.
Why would you want a key person disability policy?
Without a key person disability insurance policy, your business may suffer. The following are some examples of what could happen if a key person becomes disabled.
- While the employee is out of work, the revenue that he or she generates may substantially decrease
- You'll incur unexpected expenses recruiting and training a temporary or permanent replacement
- Less capable or inexperienced employees trying to fill in can make mistakes or cause delays that cost you money
- If a key person dies, a business loan may come due
- Customers or even other employees may look elsewhere, concerned for the future of the business after the loss of a key employee
Who can be a key person?
A key person can be anyone directly associated with the business whose loss can cause financial strain to the business.
Waiting and benefit options
There are typically two types of benefit options, a monthly payout and lump-sum. When monthly payouts are selected, the waiting/elimination period lasts from one to three months. Lump-sum benefits usually have a longer waiting/elimination period of a year or more. The policy term is usually between 12-24 months due to the idea that a suitable replacement can be found within that time period.