Key Person Insurance in Massachusetts

What Is Key Person Insurance?

Many businesses rely heavily on one essential person to manage their daily operations, and these businesses would be unable to function without this person fulfilling their role. Key person insurance helps Massachusetts businesses financially prepare for the possibility that an essential person is unable to work due.

Key person insurance is a specialized type of commercial insurance, and businesses would be wise to work with a specialized agent when selecting a policy. An essential person’s financial value should be carefully determined and potential scenarios should be carefully considered. An informed agent can help with both of these items, and an agent can make a wise policy recommendation based on those considerations.

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What Massachusetts Businesses is Key Man Insurance Right For?

Many Massachusetts businesses may benefit from key man insurance. Businesses in any industry and of any size may want a policy if they rely heavily on one or a few essential people. 

A few examples of businesses that might consider this type of policy include:

  • Small businesses run by an owner
  • Large corporations with C-level executives
  • Businesses that rely on a knowledgeable and skilled employee
  • Businesses that couldn’t easily replace employees with temporary workers

In select situations, this insurance might even be required by a lender before the lender will approve a business’ loan.

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What Coverages Does Key Man Insurance Make Available?

The coverages that key man insurance makes available normally extend only to the person(s) who are named on a policy. This eliminates any ambiguity that could arise over whether a person is essential to a business. Businesses can simply determine who they feel is essential and then, purchase policies for those specific people.

For the people named on a key man policy, the policy will usually provide three distinct protections:

  • Total and Permanent Disability Insurance, which might cover certain injuries and disabilities
  • Trauma Insurance, which might cover other injuries and disabilities
  • Standard Life Insurance, which might cover death

When offered, these three policies normally only apply to when a policy is in effect. Should a key person become disabled, injured or pass away after or before a policy’s effective period, any claim is likely to be denied.

Additionally, the life insurance provided is typically most like term life insurance where a set death benefit is provided for a defined period of time. There usually isn’t a savings component and the policy doesn’t last for the duration of the covered’s life, as is often the case with whole or universal life insurance.

Finally, these are all only common guidelines and the terms of a specific insurance policy can always vary. In order to fully understand a particular policy’s protections, a business should review the policy with a knowledgeable agent.

How Can Businesses Use Proceeds from a Key Person Policy Claim?

Should a business have to file a claim against a key person policy, any funds paid out on account of the claim are normally sent to directly to the business that has the policy. The funds typically have no restrictions, but there are some common ways that businesses might consider using the funds. Depending on a particular situation, it may be wise to:

  • Conduct a search for a new employee to replace the absent essential person
  • Pay employees’ salaries and accounts payable during a temporary absence
  • Minimize short-term debt during a temporary absence
  • Cover closing costs related to shutting down the business
  • Give a return to investors who have stakes in the business
  • Give severance packages to employees

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How Can Businesses in Massachusetts Get Key Person Insurance?

For help finding key person insurance, contact the independent insurance agents at Roger Butler Insurance. Our experienced, Massachusetts agents have the expertise to help you get the right policy for your business, and they can recommend the best available policies regardless of what insurer offers them

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Roger Butler Insurance
5 Court Street
Westfield, MA 01085
Phone: 413-562-2304
Fax: 413-568-6708

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This material is for informational purposes only. All statements herein are subject to the provisions, exclusions and conditions of the applicable policy, state and federal laws. For an actual description of coverage, terms and conditions, please refer to the applicable insurance policy or check with your insurance professional. The illustrations, instructions and principles contained in the material are general in scope and, to the best of our knowledge, current at the time of publication.
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