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What is Key Person Insurance?
Key Person Insurance is insurance purchased by a business on
the life of an owner or employee whose services contribute substantially
to the success of the business. It is owned by and payable to
the business. The insured owner or employee is a valuable asset
that is insured by the firm, in the same manner that the building
and equipment of the business are insured against physical damage.
If the key person died, not only would his or her services be
lost to the firm, but his or her replacement probably would have
less experience and be less well-trained. The key person’s
death is certain to disrupt the firm and probably result in tangible
losses.
The responsibility for the success of a business falls on the
owner(s) and the key employees. The priceless asset every business
is not its plant, equipment, or accounts receivable. These assets
are valuable only to the extent that the company has key people
in key spots who can utilize the physical assets profitably.
The priceless asset of every business is the human life values
of its key people.
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