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Key Person Life Insurance: Can You Risk Not Having It?
Would your business be able to survive without its key players? Chances are it would drastically suffer or at least you financial gains might take a significant hit, not to mention to the overall success of your company. When all is said and done, most key employees are worth more than their salaries. Think about it—their performance, typically, is the best of the best at a company; they probably know the company and its policies inside and out—a difficult trait, in any industry, to "teach," and they provide the backbone of what keeps your company in drive. It is nearly unthinkable to have to consider replacing an employee of this stature.
But let’s be realistic, life happens and your key employees may not be around forever. That is why business owners need to constantly be thinking about the needs of their company.
How would I benefit from having key person life insurance in place?
Smart business owners always have to stay one step ahead of the game, and that means keeping the future of your company top of mind. Insurance is put in place in case the unexpected happens, and key person life insurance is no exception. There are advantages to having this type of insurance policy for executives and other personnel who are essential to your company and the way it functions. In the event of a loss or disability of a key worker, your company would receive financial benefits to compensate for the loss income incurred and also to compensate for the cost of recruiting and/or bringing a new employee up to speed.
For larger corporations, this is of extreme importance not only to keep your company running smoothly, but also to ease the apprehensions of customers, investors, and/or shareholders who have a vested interest in your company.
What will key person insurance cost me?
One main reason companies abstain from investing in this type of life insurance is because they assume it will be expensive. But, that's not necessarily always the case. In fact, the amount of premium is minuscule when compared to the financial hit your company could take without one of its vital employees.
Losing a key employee can drastically affect a company in various ways. Many employees become the “glue” that hold all the other pieces of the company together. Typically, they have had a hand in building or molding the way a company is run. That can be in terms of customer relations, operations, etc. When that person is no longer available, there may be concern, among both employees and clients, that things could fall by the wayside. If clients forecast that to be true, that could potentially lead to a decrease in revenue and customer attrition. Should employees notice a disruption in day-to-day business operations, consider the cost of employee turnover. Top that with the cost to recruit, hire, and train a replacement for the loss of the employee. I don't know about you, but I see big money signs at large.
The cost of key person coverage depends on a number of factors, including the amount and type of coverage most appropriate, the nature of your business, the health and ages of the insured parties, and the estimated expenses and profit loss that could occur as a result of their death or disability. Be cautious of over-insuring. Like other insurance policies, you should shop around and get rates from different agents. Ask for quotes on a variety of coverage amounts, and compare the cost and benefits of each one. One of the main things to keep in mind while trying to figure out the amount that is sufficient for your particular company is to think about how much money your company would need to keep afloat until it could replace the key person in the case of a tragedy.
There are also other insurance options that you can choose from to safeguard your company. If you choose to purchase a policy like universal life or whole life, the policy would accrue a cash value that some companies offer at retirement. There are also policies that are less expensive, including term life, which smaller companies tend to favor in order to save money. Business owners are still able to have their mind at ease knowing they have a good policy in place at a lower cost.
Although your company would be able to function without key person life insurance, the real question to consider is, "At what level could your company function without its star player?" If you're concerned that your company might not be able to function at its current capacity, you should se
riously consider putting a life insurance policy in place. Without it, you may be taking a huge risk that could have a significant impact on the success of your company.
If you’d like to learn more about protecting your assets with key man insurance, call 866-496-2657 today.
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InsuranceJoan Cleveland, CLU, ChFC, REBC
Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the Consumer Credit Insurance Association, the Texas Association of Life and Health Insurers, as well as the Life Insurers Council. In addition, she is chair of LIMRA’s Strategic Marketing Issues Committee.
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