Key Man Insurance Cost

How Much Does Key Man Insurance Cost?

The cost of key man life insurance, usually called key person insurance, depends on several factors:

Type of Policy and Amount of coverage

  • The type of policy and amount of life insurance coverage.
  • Key person coverage limits imposed by the policy.

The Key Person’s Age, Gender, and Health

  • The key person’s age, gender, and health.

Company’s Structure and Size

  • The company’s size and structure don’t affect the cost of key person coverage per se, but a company with higher financial need after losing a key employee would need to plan for a higher death benefit.

Where to Buy Key Man Insurance?

Determining the amount of coverage to purchase for each key person is a key decision in itself!

Key Man Insurance Cost FAQ

Is key man insurance expensive?

Monarch’s experts can also help guide you through the application process. The person being insured can expect to:

  • Answer questions about health, occupation, driving, and recreational pursuits.
  • Authorize requests for medical records from health professionals.
  • Provide confirmation of financial information.

How is key person insurance calculated?

Because coverage is based on the life of one person, insurance companies underwrite them like any personal life insurance application. The insured employee’s age, health, and lifestyle will impact the cost of coverage. The cost will also vary by the type of life insurance purchased.

  • Term life insurance provides lower-cost coverage, but for a limited time period. You can request that the length of the term match the key person’s target retirement date.
  • Permanent life insurance costs more but allows for a buildup of value over time. Depending on the policy, timing and amount of the insurance premiums may be flexible, or part of the policy value may be available for investment in the market. This type of policy builds value all the way through the key person’s retirement or resignation.

Who pays the premium in a key man policy?

The purchasing company will typically pay the premiums since they will receive the death benefit in case of a claim.

With either term or cash value insurance, the business can transfer policy ownership to the key person when they leave the company. The key person then takes over premium payments and names their own beneficiaries, keeping the policy as a part of their estate plan. Or, the key person could consider selling the policy as a life settlement, using the proceeds however they wish. In the case of cash value type of insurance, the new owner may be able to access cash through a policy loan or withdrawal.

All these options have tax consequences for the key person. Be sure to encourage them to consult their tax professional before considering buying or transferring ownership of a policy or determining whether premiums are tax deductible.

Contact Monarch Insurance

Monarch Insurance Partners can help you figure out the amounts, types, and insurance companies that would best protect your business. Call 608-620-0596 for answers to your questions.