How Much Key Man Insurance To Buy

Determining how much key man life insurance can be a confusing task to undertake. When you begin trying to determine what to factor into the equation, you may find yourself at a loss. How do you put value on a possible future event? What statistics should you use to estimate an adequate amount of coverage? There are three basic methods to help you figure out the proper amount of key man insurance to buy.

Method one takes into consideration the amount of profit the key man brings in for the company. This amount is then multiplied by the length of time needed for training someone to replace that position to a point where they can produce the same income. Another calculation method is done using the replacement cost. This would be the actual cost of hiring and training a replacement employee. It would also include any financial loss incurred by the company as a result of the accident or death of the key man. The third is called the multiples of income method. This is a simple method which takes the income of the key man and multiplies it by a set number. Usually five or six times. There may be variations of any of these methods for determining key man insurance. Those variations would be made by determining and factoring in any special circumstances.