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Key person disability income insurance serves the same purpose as life insurance for key business personnel- it indemnifies the business for the lost services of the key individual. The business is the owner of the policy and pays its premiums. The policy pays a monthly benefit to the business in order to cover the expenses for additional help or outside services when the essential person becomes disabled. The key person could be a partner, working stockholder, or an individual who performs a vital management function for the company, such as a sales or operations manager.
The key person's financial value to the business is determined according to the potential loss of business income which could occur because of the individual's incapacity, as well as the expense of hiring and training a replacement. This value then becomes the disability benefit amount that would be paid to the business. The benefit can be paid in a lump sum or in monthly installments. The benefit period may be from one- to two years, with an elimination period of thirty- to ninety days generally being applied.
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