Adding Critical Illness To Key Person Insurance
Adding critical illness cover to a Key Person Insurance policy can provide additional protection and benefits in the event that the key person is diagnosed with a serious illness. Here are the steps and benefits of adding critical illness coverage to a Key Person Insurance policy:
Whether to add critical illness coverage to a Key Person Insurance policy depends on several factors and the specific needs and circumstances of your business. Here are some considerations to help you decide whether adding critical illness coverage is a wise choice:
Pros of Adding Critical Illness Coverage:
Enhanced Protection: Adding critical illness coverage provides an additional layer of protection beyond the traditional death benefit. It covers the key person in case they are diagnosed with a serious illness, ensuring financial support during a difficult time.
Business Continuity: Critical illness coverage can help your company manage the financial repercussions of a key person’s illness. It can be used to cover expenses like hiring temporary replacements, covering medical bills, or addressing any immediate financial needs.
Key Person’s Peace of Mind: Knowing they have critical illness coverage can provide peace of mind for the key person, allowing them to focus on their recovery without the added stress of financial concerns.
Customization: You can tailor the critical illness coverage to meet your specific needs. This includes choosing the types of critical illnesses covered, the benefit amount, and any waiting periods.
Tax Benefits: Depending on your location and tax laws, premiums for Key Person Insurance, including critical illness coverage, may be tax-deductible as a business expense. Additionally, the benefits paid out may be tax-free.
Cons of Adding Critical Illness Coverage:
Cost: Adding critical illness coverage will increase the premium cost of your Key Person Insurance policy. You’ll need to assess whether the additional expense fits within your budget.
Probability vs. Impact: Consider the likelihood of a key person becoming critically ill and the potential financial impact on your business. Assess whether the cost of the coverage justifies the potential benefits.
Alternative Coverage: Evaluate whether your key person already has personal critical illness insurance in place. If they do, you might not need to duplicate coverage through the business.
Coverage Details: Review the terms and conditions of the critical illness coverage carefully. Ensure that the types of critical illnesses covered align with the key person’s health risks and the needs of your business.
Risk Assessment: Consider how reliant your business is on the key person. If their absence due to illness would have a significant negative impact on operations and revenue, critical illness coverage may be more justified.
In conclusion, the decision to add critical illness coverage to a Key Person Insurance policy should be based on a thorough assessment of your business’s needs, your budget, and the potential risks associated with the key person’s health. It’s advisable to consult with an insurance professional who can help you evaluate your specific circumstances and determine the most appropriate coverage for your situation.
Steps to Add Critical Illness Cover to an existing policy:
Contact Your Insurance Provider: Start by reaching out to your insurance provider or agent who manages your Key Person Insurance policy. Inform them that you want to add critical illness coverage to the existing policy.
Review Policy Terms: Carefully review your current Key Person Insurance policy to understand its terms, coverage amount, and any limitations.
Assess Critical Illness Options: Discuss with your insurance provider the available options for critical illness coverage. They can provide information on the types of critical illnesses covered, benefit amounts, waiting periods, and premium costs.
Underwriting and Health Assessment: The insurance company may require the key person to undergo a medical assessment or provide health information to determine eligibility for critical illness coverage and to set the premium rates.
Policy Amendment: Once you’ve selected the desired critical illness coverage options, your insurance provider will make amendments to your existing Key Person Insurance policy to include this coverage.
It may be better to actually look at taking our a new policy all together as your current provider may not be the best.