The Best Results With Key Man Life InsuranceKey man life insurance, also known as key man life insurance, is a unique type of insurance. There’s no absolute legal definition for “key man insurance”. The key man refers to the person that is insured, and the person that the insured wants to insure. In other words, this type of policy can be considered a ‘use it or lose it’ contract. The key man life insurance contract usually stipulates that the insured individual will buy a policy from the company. Then, at some point in time, the company may choose to terminate the contract. When this happens, the business partners that are left may be left with the large lump sum of money. It is important for companies to realize that it is possible for them to absorb the losses in the event that these contracts aren’t maintained. Many times, insurance companies underwrite these types of policies for businesses and individuals. For instance, an insurance company may write a key man life insurance policy for a business partner that was a part of the company for many years. When this person retires, the insurance company may choose to terminate the contract so that they don’t lose the money. However, many times the company may choose to keep the contract simply because they have an established relationship with the person. In this instance, they want to ensure that the business continues. As an example, let’s say that Bob lives in California but owns his own contracting company in Florida. He and his wife live in Florida. One day, Bob goes on a business trip to Florida. He takes all of his inventory with him but doesn’t bring any cash. His company needs a cash value component to function so that they can pay their expenses and pay Bob a bonus. Bob contacts his own insurance agent who is a licensed cash value agent and asks them to get the cash paid by the company on his behalf. Bob contacts his agent and tells them about his inventory, shares his plan with them, and gets a life insurance policy from them. Now, the company has chosen to purchase the contract from Bob and to maintain his cash value component to the insurance policy. The insured has officially become a key man in the company. This would be the most common scenario for a key man life insurance policies. But what would happen if the person did not have a contract? What would happen if they purchased a policy themselves and made mistakes during the underwriting process? The answer is very interesting and goes against the common thought that the agent would always do things the way they are dictated by the rules. For example, what if Bob had made some silly mistake during the initial screening process where he had failed to disclose something? There are many things you could think of that could happen, but they would all be wrong. The answer is not that simple because everyone would make mistakes and as we all know, no one is perfect. Let’s say you were trying to purchase a policy with no contract. When the underwriting process began, the insurance company would use their standard valuation methods. They would look at the economic situations of each company and decide how much they would allow you to borrow based on the income level you are in. Bob, who is just an ordinary person, makes more than the company will allow and therefore ends up paying more in insurance premiums. This would not be a fair market value option for him and therefore he would probably try to get out of the policy at the earliest opportunity. Key man insurance is the only way for the insurance company to determine how much you should pay in premiums. This will ensure that the business owner will receive the best possible rates and that the business will be able to sustain itself during the difficult times. This method has worked for many businesses and this is the reason why it will work for you too. So, find a good agent today who will work in your best interests and you can be assured of fair market value rates.
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