Key Person Disability Insurance

Businesses depend on the people who run them. This isn’t just the business owner: key employees may play a critical role in the company’s day-to-day operations and capability to make a profit. What happens when one of these key employees suddenly has to stop working due to a disability? Key person disability insurance can help the business navigate this difficult time and cope with the financial impact.

How Does Key Person Insurance Work?

It is the company (rather than the employee) that owns the key person disability insurance policy and receives the benefits. The company decides which key employee (or employees) to insure. If a covered employee is unable to work due to a covered disability, the company receives a disability income payment, according to the terms of the policy. This payment can compensate for the employee’s absence by making up for lost revenue or covering the cost of hiring and training a temporary replacement worker.

Key person disability coverage is designed to provide short-term coverage. Policies typically provide benefit periods of 12 to 24 months. This gives the disabled employee time to recover and return to work or, if that is not possible, for the company to make other arrangements.