Right amount of key man insurance

Finding the right amount of key employee insurance is very affordable with favorable market conditions. Choosing the right level of key man insurance coverage can be determined by three methods that ensure you replace revenue of key employees who are top sales people or technicians who make your business a success.

Often key employee insurance amounts are over-estimated. Key man insurance should be based on the actual costs of replacing the key employee in your company. Buying the right amount of key person insurance that covers the actual costs ensures your company can continue in the unfortunate death of a key employee and that your company isn't paying for more term life insurance than it needs. To find the best key life insurance rates, start by emailing me or calling at 1.800.799.0903, and I will search an extensive list of term life insurance companies for the best quotes.

For the right amount of key employee insurance, there are three methods to determine the level of key life insurance: multiples of income method, replacement cost method and contributions to earnings method. In the multiples of income method, key man insurance is determined by multiplying the person's current compensation including benefits by five to seven times. In determining key person insurance with this method, for example, a key person making $200,000 would be insured for $1 million.

Using the replacement cost method for key life insurance means not only using the salary but also the expenses needed to bring the employee on board and bring the person up to the same level as the key employee. For this key employee insurance method, you should also include the amount of revenue you estimate losing if the key person dies.

The third way of calculating key person insurance levels of coverage is the contributions earnings method. In this key employee insurance calculation, the contribution the key person makes to the bottom line is the basis for the term insurance level. For example, for the best term insurance rate for a key salesperson, you'd use the portion this person contributes to the yearly profits multiplied by the number of years it would take to train someone or recruit someone who could make the company the same amount of profit.

Jim O'Connor, Life Insurance Agent
PO Box 832, Tiburon CA 94920
Tel: 1-800-799-0903 Fax: 415-435-2870 Email: info@term22.com
Copyright 2011 Jim O'Connor, Life Insurance Agent

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