As per the Insurance Information Institute, key-person life insurance is an effective type of life coverage plan that offers a death benefit to an organization when its owner or another important external personality dies. If the company’s reputation and financial viability are extremely tied to the key person’s name, skills, or reputation, then the death benefit is provided to them as a group. This is also known as split-dollar life insurance. The two distinctive features of Key-person life insurance include:
The split-dollar feature – if the insured individual who is named on the policy passes away, the death benefits are paid to his/her spouse or the surviving family members as a group; however, the cost of coverage remains the same for each beneficiary. In contrast to split-dollar life insurance, where the cost per beneficiary remains the same throughout the life of the insured individual, the split-dollar life insurance has a fixed cost throughout the insured individual’s life. Also, if the insured person who is named on the policy dies before reaching the age of 70 or if he/she becomes disabled before reaching this age, then the death benefits are paid in full to the spouse or the surviving family members. There is no provision for paying out benefits to other individuals. Therefore, in the event that the insured person dies during or after reaching the age of 70, the key person life insurance beneficiary receives a lump-sum payment rather than getting future payments.
There are two circumstances under which a key person’s life insurance can be used to pay a death benefit. The first is when the beneficiary of the plan name dies, or at the time that he/she reaches the age of 70, the former spouse of the deceased employee is the beneficiary. Under these circumstances, the former spouse receives a lump sum settlement. The second scenario is that the key person does not reach the age of 70, and his/her dependents do not receive any death benefit from the plan. In this case, the benefit may be paid to or transferred to one or more surviving dependent of the employee.
These two situations mean that there are two different types of key person life insurance policies. They are known as a level premium or increased premium and single premium or decreased premium. A decreased premium policy means that there is an increase in the death benefit if the current insured dies. On the other hand, a single premium policy is usually less expensive.
In a level premium key person life insurance policy, the premium is determined by the age of the employees at the time of death and their expected lives. Premiums for single premium policies are based on an average life expectancy of about sixty-five years. Premiums for these plans are always higher for key employees than for other employees. Single premium policies are less expensive for key employees than for other employees but are no less desirable for key employees.
In a key person life insurance policy, the survivor or beneficiaries receive payment after the covered individual’s death. Unlike a level premium policy, however, they do not receive a lump sum settlement. Instead, the survivors receive payment from the insurer. It is important for these policies to be taken as life insurance. For instance, if you die as a covered person, you and your family will pay the death benefits. However, if you pass away as the beneficiary of another person’s coverage, you will not receive coverage as a beneficiary, and your family will not receive any death benefits.
A key-person life insurance policy is an important part of an employee package. In particular, coverage for key people such as employees, business partners, and business partners should be taken into account when replacing health coverage by signing up for a new individual life insurance policy. As we all know, it can be difficult to replace lost wages when we are no longer with an employer. This extra expense can be financially devastating in the event of your untimely death.
It is also wise to consider taking out a key person life insurance policy to cover other employees who are important to you. If, for example, you have teenage children, consider taking them out on a term policy. A term policy is typically less expensive than a whole health or disability insurance policy. In most cases, term coverage premiums are lower than full policy coverage, which is usually more expensive. Also, because term coverage is less expensive, it allows you to adjust premiums based on the health of your kids over time. If you want more information on split-dollar life insurance or key person life insurance then contact best Orange County life insurance experts, the Bay Point insurance services.
