Protect Your Key Assets

Most organizations employ at least one individual who is essential to the company’s success. This person may be a partner, majority stockholder or an individual with expertise that is unmatched throughout the rest of the company. If this person’s exit from the company is planned, such as retirement or voluntary termination, then you can prepare for the loss and take the necessary precautions to minimize the impact. However, if the departure is unplanned due to a disabling accident or another unexpected occurrence, then the company is exposed to financial risks. Consider key person disability insurance to offset your risk. This insurance solution can protect your organization’s solvency in the event that you lose the key person or people without warning, and also the investments made by lenders and investors to the company.

Who Needs Key Person Disability Coverage?

Your company may take out key person coverage on you if you fall within the top 20 percent of the company in terms of salary. Of course, before your company takes out a policy, you must consent to the coverage. If you fall into any of the descriptions listed below, you may want to bring up key person disability coverage for consideration with your employer or—if you own the business—with your employees. Key person disability coverage is crucial for the following:

• Employees who would be extremely difficult, time-consuming or expensive to replace
• Highly skilled employees with unique training or skills
• Employees with exclusive ties to key clients, like sports stars
• Employees who are company leaders and have irreplaceable knowledge
• Small business owners who would face financial hardship in losing a key staff member, employee or client

How Does It Work?

Here are the basics of key person insurance:

• The employer pays the premiums and serves as the beneficiary in the event of the employee’s disability.
• Tax-free dollars from the policy can be put towards finding, hiring and training a replacement employee, compensation for lost business during the transition and/or financing timely business transactions.
• The policy is used to protect the business, not the key employee—in the event the key person becomes disabled, the policy proceeds can be used by the company for any purpose.
• Premiums are based on several factors, including the key employee’s age, physical conditions and health history. The amount of coverage also affects the premium.

In addition to proper coverage, create a business continuation plan that outlines how your business will function if you lose key employees.