Key Man & Buy/Sell Agreements

Even if you’re an expert in your business, mistakes happen. And if your client thinks a mistake in your professional services caused a financial loss, they can sue you.

How Key Man Insurance Works in Florida

 

Errors and Omissions insurance (E&O), a form of professional liability insurance, can protect you and your business against actual or alleged errors and omissions that may occur while providing your professional services. These claims can include giving incorrect advice or omitting a piece of information. No matter how baseless the claims are, they can tie you up in legal fees- which can be paid for by having an E&O policy. 

Professional liability insurance helps cover claims of:

  • Negligence
  • Misrepresentation
  • Inaccurate advice
  • Breach of contract
  • Failure to render services

Most insurance companies write a professional liability insurance policy on a claims-made basis with a retroactive date. 

The retroactive date means you're covered for incidents that happen on or after a specified date. You want to make sure that when shopping for your E&O policy, you maintain that same retroactive date if you move to a new carrier. 

Being on a claims-made policy form means your insurance company only covers claims made against your business during your policy period or within any extended reporting that has been added on. And the claim must be from a covered error or omission that happened after the retroactive date listed on the policy. 

Is There a Difference Between Professional Liability and Errors and Omissions Insurance?

The short answer is no. Different industries use different terms for the same type of coverage. Here is how you may see it depending on the industry:

  • Malpractice - Doctors
  • Errors & Omissions (E&O) - Attorneys, CPAs, Consultants, Insurance Agents, Realtors, Architects & Engineers
  • Director and Officers (D&O) - Board members of homeowner or condo associations, of non-profits, or directors of publicly traded companies

 

Key-Man & Buy/Sell Frequently Asked Questions

 A business decides to purchase life insurance for one of the company’s employees. The reason is to help the company recover from the loss of an employee that is key to the success of the business and replacing this individual will probably take time which in turn can have a negative financial impact.

Key Man Life Insurance is purchased by the company owner and is the beneficiary of the policy. Of course, the purchase of this policy is obtained with the employee's consent which must be in writing before the policy is purchased.

Term Insurance is often used for this process because pricing a Permanent Life Policy or any other type will be costly for the company to sustain. Key Man Life policies are purchase in 10-, 20- or 25-year amount of time which is determined by the age of the employee, the expected time for retirement, and many other valid reasons the company faces.

The company should purchase a life policy with flexible terms:

  • Increase or decrease limits
  • Business Exchange Rider (switch the insured employee)
  • Increase or decrease term limits

The answer is NO. The Internal Revenue Service does not allow businesses to deduct for key man insurance premiums.

When a company needs investment and applies for a loan most of the financial institutions will require Key Man Life insurance. Most of the time the key man in a small business are the owners and losing one of them can have a catastrophic effect to the point of bankruptcy. The Key Man’s benefit can be used to find a replacement with experience and skills that will help the company growing. Or the benefit can be used to pay debts, hire employees, training, offsetting lost income, etc.

Some of the factor that will impact the cost of purchasing this type of insurance are:

  • The industry and occupation
  • Physical health of the insured
  • Age
  • Gender
  • Compensation
  • Key person contribution to revenue

Most of Key Man Life policies are portable. If the employee leaves the company, the policy can me transfer to the insured who would be responsible for payments.

Here are some of elements use for calculation how much insurance is needed:

  • Business revenue
  • Key persons contribution to Revenue
  • Key person salary and bonus
  • Year left to retirement
  • Key Man Life Insurance offer different limits of insurance; from $100K to $1M. Most insurance companies will require financial records anything above $1M.

Here are some of the reasons you need to look at Buy-Sell Agreements:

  • If you are a business owner and you die a buy-sell agreement can protect your heirs as a buyer at a set price.
  • If become disable you have the opportunity of selling your shares of the business of course at a previously agreed price.
  • The best protection for your family.
  • Most of the time Buy-Sell Agreements are founded by life insurance.

Get Your Professional Liability Quote Today

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