Unless you are well-versed in the insurance industry, key person life insurance claims may be a thing of mystery to you. Known as either Key Person or Key Man insurance, this type of insurance is often used to protect catastrophe that may come upon certain individuals involved in a business. The idea is that the business would be protected from major losses in the event that an important person in the business dies or is incapacitated for an extensive amount of time. Understanding the basics for this type of insurance coverage and how claims for this insurance work will go a long way towards a successful claims process if you ever find yourself involved in this type of scenario.
Key Person Insurance Basics
When taking out a policy on a “key person”, consumers will want to understand the looseness of this term. In general, it refers to a member of a business that is very valuable to the operations of the business. A business might insure this person because this person’s death would cost them a large portion of the business’s profits. For example, imagine a clothing design company that is built around the success of one famous fashion designer’s work. If this designer were to die, the company would lose essentially all of its customers as that designer would no longer be the one doing the work. In this instance, it would make sense for the business to get key person insurance on the designer to help offset some the financial damage they would experience from an unforeseen catastrophe.
In general, these key person policies are not designed for hte sole purpose of covering a death. There are other incidents that may occur in which the insurance provider would still pay out. These incidents are usually broken down in to one of the four following categories for a key man policy payout:
- Extended Absence - if the key person has suffered an accident that will keep them out for extended period of time, the provider will cover the losses to the business and sometime provide a temporary replacement;
- Lost Profits - the policy will help offset profits if the business suffers many lost sales due to this person’s absence;
- Protect Shareholder Interests - existing shareholders may be able to take out insurance on the key person if they feel their interests are at risk; and
- Business Loan Protections - If a lender feels they are at risk from a key person loss, this insurance can offset their loan amount.
Making a Claim
As you can see above, there are various parties that might hold a key person insurance policy for a business. If the policyholder is financially injured from the death or serious injury of a key person, they will go through a somewhat similar claims process as many other types of insurance policies. After a claim is filed, the insurance provider will follow up with a decision as to whether approve, deny or delay the claim. If you have involved in such a claim and received an unfavorable outcome, try reaching out to an experienced legal team to get you set in the right direction.