The success and continued existence of many small businesses is usually tethered to the activities of only a handful of valuable or “key” individuals. These individuals are usually:
- Top Sales People;
- Decision Makers.
In the event of death or disability of one of these “key” individuals, many small businesses would cease operations or struggle to continue as a going concern. Key Person insurance is simply life insurance designed to provide liquidity in the event of the death or disability of an important person to the Company, not the individual.
The business is the owner of the policy, and the business pays the premium. The term benefit provides the business much needed liquidity to continue operations, replace income, and meet obligations if the unspeakable loss occurs. Most small businesses readily insure buildings and vehicles, but fail to address the exposure to loss to the Company that would arise in the event of a death, which his typically a greater burden to the continued success of the business than a property or casualty loss.
A Key Person Agreement is a necessary tool to delineate the rights and responsibilities among the Company, Key Person, as well as the funding vehicle to provide for the benefits for the Company.
Please visit our resource page at Cox Law PLLC for small business to learn more about Key Person Agreements, or please feel free to contact the firm for further information regarding these Agreements.