For key person insurance, a company purchases a life insurance policy on certain employee(s), pays the premiums, and is the beneficiary of the policy. In the event of the person's death, the company receives the policy's death benefit.That money can be used to cover the costs of recruiting, hiring, and training a replacement for the deceased person. If the company doesn't believe it can continue operations, it can use the money to pay off debts, distribute money to investors, provide severance benefits to employees, and close the business down in an orderly manner. Key person insurance gives the company some options other than immediate bankruptcy.
To determine whether a business needs this kind of coverage, company leaders must consider who is irreplaceable in the short term. In many small businesses, it's the owner who does most things, such as keeping the books, managing employees, handling key customers, etc. Without this person, the business can come to a stop.
Employer-Employee Insurance:
When an employee takes insurance on the life of its employees, it is known as Employer-Employee insurance. The employer himself may pay the premium or he may finance a loan to the employee towards payment of premium. There is no restriction on the minimum or maximum number of employees to be covered under employer-employee insurance. The employer can be any reputed company or partnership firm. Employers have an insurable interest in his employees and vice versa. On this primary consideration alone, provided there is the total absence of the moral hazard element in any given proposal, insurance cover on an employee’s life can be granted. There will be many reasons for employers to have his employees live covered