Does this situation sound familiar? You've got a great team working for you, and business is good. You know that much of your success is due to one or two key people because of their unique skills, experience, or personalities. But what would happen if they were injured and out of work for a while? Worse yet, what would happen if they died? Would your business survive? Key employee life and disability insurance coverage can help make sure that it does.
When Bad Things Happen to Good People
Your key employees are the special people whose unique skills and talents allow them to make outsize contributions to your business's financial success. If a key employee were disabled or passed away, your business would suffer a pretty big financial loss. Here’s how:
- While the employee is out of work, the revenue that he or she generates may substantially decrease.
- You'll incur unexpected expenses recruiting and training a temporary or permanent replacement.
- Less capable or inexperienced employees trying to fill in can make mistakes or cause delays that cost you money.
- Customers or even other employees may look elsewhere, concerned for the future of the business after the loss of a key employee.
Key employee life insurance and disability insurance policies can help soften the impact of these hardships. Most of the employers who buy key employee policies own small or medium-sized business. These are the most affected when one person gets sick or hurt and can't work.
Key Employee Life Insurance: How Does it Work?
In most cases, your business takes out a life insurance policy on a key employee. Your business also pays the premiums, and is the beneficiary in the event of the employee's death. As the owner of the policy, the business can surrender it, borrow against it, and use either the cash value or the death benefit as the business owner or management team sees fit.
It's hard to put a dollar value on a key employee's economic worth. The right level of coverage might be the cost of recruiting and training a replacement. Alternatively, the insurance amount might be the key employee's annual salary times the number of years a newly hired replacement might take to reach a similar skill level. Finally, you should also consider the key employee's value in terms of company profits. The level of insurance coverage might also be tied to any anticipated profit loss.
If your business depends on its superstars to not only make a profit but keep the doors open, consider a key person insurance policy. It will provide peace of mind for you, the employer, and for the rest of your employees...who know their boss is looking out for them.
There's so much more that life insurance can do for your business. Learn how in the video below: