Most companies have one or more "ringers." In your company, you know who these people are: top salespeople or "producers," key executives, owners, etc. In small- to medium-sized businesses especially, these are the people crucial to success because of their talent, specialized skills, experience, knowledge of your company and many other factors.
Simply put, they're the ones who get the tough jobs done and keep revenue streaming into your business.
Now, imagine if one of your ringers was suddenly gone due to death or disability. What would the short- and long-term effects on your company be?
Key man insurance - which may also be called "key employee," "key person" or "key executive" insurance - could be the answer to protect your company.
How Key Man Insurance Works
Key man insurance is a life and disability insurance policy that companies take out on key personnel, usually with a specific dollar-amount benefit for each individual covered. In the event of a covered employee's death or disability, the company - not the employee - receives the benefit.
How Much Coverage Do You Need?
Once you've determined who your key employees are, your insurance agent can help you walk through a number of factors to determine how much coverage you need. At a minimum, you want to make sure you're covered for the considerable cost of recruiting, hiring and training someone capable of taking a key employee's place.
Other things to consider if you were to lose a key employee:
Would you experience falling sales?
Would you lose critical management skills that could lead to reduced productivity?
What would your short- and long-term revenue losses be?
Certain businesses - in particular professional service firms - have other factors to consider. For example:
A law firm or medical practice usually can't replace a 30-year veteran with a recent graduate - or if they do, can't expect the replacement to generate the same revenue until years later.
If the key person is a partner in the firm, who will inherit his or her share of the business in the event of death? If it's a family member, are they being groomed to step in as a partner, or will they need to be bought out?
It's important to remember that while life insurance is an important part of a key man policy, the odds of disability are much higher. So, make sure any policy you consider provides both life and disability coverage. Also, keep in mind that in some cases, premium for these policies can be written off as a business expense -and any benefits received are usually tax free.
Talk To Your Insurance Agent
You want to ensure that your company can continue to run properly (and profitably) if you lose a key employee. Your agent can answer many complex questions and help you determine the right amount of key man coverage for your company, so talk to him or her today. It's one of the best moves you can make to protect your company in the event of an unforeseen tragedy.