Your business has a few key employees who contribute to the growth and running of your company. They may have a certain skill set, know important contacts, or possess vital knowledge.
But, what happens to your business if they are incapacitated, fall ill, or pass away?
While most of us are familiar with the way that the life insurance of a family’s primary breadwinner can provide for their family after they are gone, many aren’t aware that key man insurance works in a similar fashion for businesses.
Does Your Business Need Key Man Insurance?
You should consider visiting https://www.mykeymaninsurance.com/ if the operation of your business relies heavily on a few key individuals in the company.
Think of it this way: if one of your salespeople consistently outperforms all your other staff and brings in a substantial stream of revenue, it makes sense that your business would suffer a tremendous loss if they were to suddenly stop working. In this case, your top salesperson is intrinsically tied to the success of your business.
Key man insurance policies cover the life of essential employees for monetary value and ensure that the business does not take a blow if they pass away or become disabled. The beneficiary of the key man policy is the business – essentially, key man insurance is corporate-owned life insurance.
There are three main reasons to purchase key man insurance. They are business continuity, protection, and future growth.
If there is no business continuity plan in place, who will run the business when the key players are gone?
For instance, if the business is a family business, who will assume the key individual’s role if they pass away?
In some cases, the family involved in the business doesn’t want to have anything to do with it once the key family member passes.
Key man insurance can take care of business partner dynamics when one partner passes away or becomes incapacitated.
Another way that key man insurance ensures business continuity is through business reputation management. If the business’ reputation is intrinsically linked to the key employee’s name, key man insurance offers protection.
If your business cannot continue if it loses a particular individual, you need key man insurance. You need to consider how much expertise and knowledge your key employee has.
For instance, if you are in the service industry and your business relies on a few key partners (such as physicians, attorneys, etc.), would you be able to replace these individuals quickly? What kind of impact would they have on your revenue if they were to stop working?
Future Growth and Investment
Most banks, private equity firms, and venture capitalists require key man insurance coverage before they will provide financing or credit to a company.
Having a key man policy in place protects the financing institution’s investment by reducing risk and ensuring the longevity and stability of the business plan.
If a key employee passes away, falls critically ill, or becomes disabled, key man insurance ensures that the impact of losing a vital employee is not felt by the business – it is a safety net.
Key man insurance can also help a business recover by covering hiring, training, and replacement costs and loss of profit or debt that is incurred in the interim.