What to Do with A Key Man Policy When the Key Man Leaves
- When the key person covered by a key man insurance policy leaves the company, there are several options to consider for the policy. The course of action you take depends on the circumstances, your business’s needs, and the terms of the policy. Most of the time you will be able to call up and cancel over the phone. You can also just stop paying the premiums.
Here are some more steps to consider:
Assess the Policy Terms: Review the key man insurance policy to understand its terms and conditions, including the policy’s ownership, beneficiaries, and any surrender or cancellation provisions. The policy’s terms may dictate your options but most of the time a policy can just be cancelled without any penalty.
Transfer Ownership: It may be possible to change the policy to a normal life insurance policy and transfer ownership to the life assured. This is called assigning a policy and can be done using a transfer of ownership form or what is sometimes called a deed of assignment form. These forms are normally available through the insurance provider.
Surrender or Cancel the Policy: If the policy is no longer needed or is deemed too costly to maintain, you may choose to surrender or cancel it. This can be done by contacting the insurance company and following their procedures for policy cancellation. Keep in mind that there may be financial implications for surrendering a policy, so consult with a financial advisor or insurance professional before making a decision.
Communication: Keep all relevant parties informed, including any lenders that may have issued a loan on the basis of having key person insurance in place.
The appropriate action to take with a key man insurance policy when the key person leaves will vary depending on the specific circumstances and the business’s financial situation. Careful consideration and professional guidance are essential to make informed decisions that align with your company’s goals and interests.