The most important asset many businesses have are the people that work for the business. The continued profitability of the organization is largely based on the input of the key people within that organization. The loss of a key person in most businesses could be financially crippling, and in some cases could mean the end of the business.
Firstly, what is a key person? Simply put, a key person is someone whose loss through death, illness or disability would have a negative financial impact on the future of the business. The loss of any individual or groups of individuals who are central to the operation of the business would effectively constitute a risk for the business. This would result in a direct loss, possibly due to decreased sales or the high cost of replacing the key employee, as well as the opportunity cost in the loss of profits while the replacement is being trained.
A key person life insurance or critical illness policy can be set up to properly protect the business from the unexpected loss of a crucial staff member. Key person life and critical illness policies work very much in the same way that an individual life or critical illness policy would work. Each key person would still be required to undergo underwriting requirements that may vary depending on the insurance carrier but the basic process would be to determine a premium based on the payout amount, age, sex, health and smoker status of the key person.
The objective of a key person policy is to provide immediate working capital In the event that this key person passes away or is diagnosed with a critical illness. The policy payout is the working capital that would cover the cost of recruiting and training a replacement as well as the potential fallout from lost sales and specialized skills.
To get a more detailed understanding of your organizational risk management needs, contact me directly and I will guide you through the process of choosing the right product.