Key Person Insurance
Major challenges for businesses include:
The maintenance of a business upon the
- Critical illness of owners or of key employers
- The retention of value for survivors
Every successful business has one or more key employees on which the business depends on.
Anyone whose death would cause a ﬁnancial hardship or economic loss to the company is a key person.
Business owners accept without question the importance of insuring physical assets of the business against loss from ﬁre, storms and other hazards. However, people make a business.
The Probability of Loss
It has been estimated that the chance of death of a key person is:
- 14 times greater at age 45 than the chance of a ﬁre loss.
- 17 times greater at age 50 than the chance of a ﬁre loss.
- 23 times greater at age 55 than the chance of a ﬁre loss.
The loss of a key person from death is permanent; buildings can be rebuilt.
How much would it cost to replace the person in question?
- Will the replacement demand more salary than the deceased was paid?
- Will the replacement do the job as efﬁciently and effectively?
- How long would it take to train the replacement? How much would it cost?
How much is the person worth to the company in terms of net proﬁts?
This depends on the position, in some cases it may be easy to tie performance to proﬁts, in other cases it is extremely difﬁcult.
How much would it cost the company if the key person died or could not work today?
- How difﬁcult would it be to replace the individual’s special talents?
- Would the company collapse?
- Would a special project have to be abandoned?
- Would a department have to be closed?
The key person is a valuable business asset. So what is the answer?
Key Person Protection
Using Life Insurance and Critical Illness
Life Insurance and Critical Illness cannot replace the human mind but they can indemnify the business for the ﬁnancial value that can be lost. They can provide cash to:
- Keep the business running.
- Assure creditors that their loans are safe.
- Assure customers that the business will continue operating as usual.
- Cover the losses from the mistakes that a less capable successor may make.
- Cover the special expenses of ﬁnding, hiring, and training a successor.
The Life Insurance set up.
- The company purchases life insurance on the key person.
- The company is the owner of the policy.
- The company is the beneficiary of the policy.
- The company pays the premiums.
Your most valuable asset