KW: Key Man Insurance
Meta Description: Do you wish to protect your human capital for your business’s future? Here’s essential information about key man insurance and disability.
In running your business, you’ll need a solid and progressive team. Over time, specific individuals in your group will grow in importance. It will likely be yourself and other key players in your company’s growth and development. As such, you’ll naturally worry about the fate of your business should anything happen to these individuals.
For peace of mind, it is crucial to get key man insurance to protect your organisation’s future. This article highlights the importance of key man insurance and how it handles the disability of such individuals.
What Is Key Man Insurance?
Key man insurance is a type of business life insurance. It compensates a business when a key person dies or becomes critically ill and thus unable to perform their typical duties. A key person is an individual whose skills or knowledge significantly contribute to the business’s success. They are usually the CEO, top-level executive member, top sales agent, or similar.
Key person insurance is a risk mitigation tool that looks to replace the key person’s financial contribution. It provides the business with ample time to find a suitable replacement for the key person. If there are payments the key person was to make, such as for a loan, this policy covers such expenditure.
The business pays the premiums for the policy. In the event of a claim, the company is the beneficiary when the covered incident occurs.
How Much Key Man Insurance Does A Business Need?
There is no standard figure for how much key man insurance you should take. It comes down to the specifics of your business. When deciding how much key man insurance to take, consider these factors:
• The amount of revenue that the key person being insured generates
• The size of your business and the number of employees you have
• The amount of debt the firm is yet to pay
• The cost and difficulty of hiring and training a replacement for the key person
• The chances of the business remaining operational in case the key person dies or becomes disabled.
The nature of your business and the key person’s position determine whether it will remain operational or shut down. For example, it could be a family business, and your parents, the founders, pass on. You will likely keep the business going so long as you clear any parents’ outstanding debts. In addition, you could employ and train more employees to assume their duties or to assume yours as you assume your parents’.
However, if you pass on or become disabled as the founder, your spouse may not successfully take over. Therefore, it would be best to settle all debts and have enough to do something else or take care of you.
Why Is Disability A Critical Consideration?
The chances of a key person becoming disabled are higher than that person dying. This probability makes acquiring a key person’s disability cover important. These policies won’t help the business if the key person is alive but disabled.
In most business management setups, as an essential person gets older, they tend to train an apprentice. Similarly, the business plans for a replacement since retirement is inevitable.
However, few businesses plan for the disability of a key person. Since disability could strike anyone at any age, focusing on the disability aspect of key man insurance is critical. Therefore, it is understandable you’re interested in disability in key man insurance.
Disability lacks the finality of death. Therefore, your business will be affected in specific ways:
• For a small business, the loss of management skills and experience will take time to recover.
• Key suppliers may withhold their services since their preferred contact person is unavailable. This will interfere with normal business operations.
• If the key person is a top sales rep, a business will slow down as their personalised approach prevents other salespeople from taking over his accounts.
• Uncertainty before doctors declare the disability permanent will make it hard for you to decide on the best course of action. The possibility of recovery will leave business operations in disarray.
Conclusion – Get In Touch Today
In business, you have to consider what would happen if key team members are no longer there. The company will miss the skills, knowledge, experience, supplier relationships, and future performance, whether yours or anyone else’s. Therefore, key man insurance is an important asset, especially where disability is involved. We offer expertise in relevant life insurance and executive income protection and are ready to help you choose the right level of key man insurance for your business. Call us today, and let us work on protecting your business interests.