Among several benefits that businesses and organizations offer to its employees, insurance is one of the most important ones. By including medical insurance in the list of works offered to employees, organizations can help its workforce gain a sense of security and belonging.
However, when it comes to insurance for the workforce, there are many types to choose from. It's common for organizations to confuse employee medical insurance (also known as mediclaim) with key person life insurance. These two types of insurance are totally different from each other. While mediclaim is suitable for the entire workforce, key personal life insurance isn't.
If you have the common confusion of ‘which of these is not a reason for a business to buy key person life insurance,’ you have come to the right place.
Important things to know about Key Person Life Insurance
Before proceeding with the reasons why businesses shouldn't opt for a key person life insurance policy, it's good to gain a basic understanding of what this insurance type is. Unlike regular medical and life insurance, key person life insurance (also known as keyman insurance or key life insurance) is specifically designed for valuable assets (key people) such as owner, CEO, and investors of any given company.
Key person insurance is intended too for certain employees who have special skill sets and have major contributions towards the profitability of the business. In case of unfortunate instances, such as the death of the important person who is insured with the key person life insurance, the insurance provides the company with monetary assistance. This, in turn, helps ensure that the financial and operational flow of the company is maintained. Also, it's worth knowing that key person life insurance tax is not deductible.
Reasons why a business should not buy Key Person Life Insurance
While key personal life insurance offers one of the most crucial security benefits to any given company, opting for this insurance isn’t always the right decision for certain companies or during certain scenarios.
To answer the commonly asked question of ‘which of these is not a reason for a business to buy key person life insurance,’ we have laid down several pointers:
If the company is under an acquisition
If any business or organization is under the acquisition of another company, opting for a key person life insurance isn't the best option. One of the most important reasons for this is the demise of the key person of the acquired company may not increase the risk of financial or operational disruption as the parent company can offer assistance in terms of finance as well as resources.
If the key person isn't a shareholder or isn't under a contract tenure
If an organization is planning to offer insurance security to an important person who is not the owner or a shareholder or isn't under a contract tenure, opting for a key person life insurance isn't the best move.
This is mainly because the important/key person doesn't have any obligation to continue working with the company for the long-term unless he/she is under a work contract. If the important person decides to resign from the company, the premiums paid for the insurance can come off as an unnecessary extra expense. If you want to know which statement regarding a key employee life policy is not true, it's the common misconception that the insurance is suitable for anybody who is valuable to the company
How business can benefit from Key Person Life Insurance
It's worth knowing that key person life insurance can benefit businesses in ways more than one. Here, we have outlined some of the most important benefits that the insurance offers:
Having financial security in place
As mentioned before, the most important benefit that a key person life insurance offers to businesses is monetary assistance in case of the key person’s demise. This helps maintain stability in the operational flow of the organization.
Tax benefits from the insurance
In most cases, premiums that are to be paid for a key person life insurance is considered as a business expense. What this means for businesses is that they can claim tax benefits on the policy premiums paid.
Stability in the company’s stocks
The quick and efficient deployment of monetary assistance from key personal life insurance means that companies do not stand at the risk of fluctuations in stock valuations.
Buying the company's shares
If the organization is in a partnership, and each shareholder wants to buy the other’s share in case of his/her death, opting for a key person life insurance can be beneficial.