Whether it is in inventory, reports, or cash value, “loss” is not a comfortable term in business. Most often, industry loss is focused on inanimate objects and dangerously does not consider the loss of a human resource. Businesses rely on their key employees to make significant contributions to its success, and it is important to consider them for the business’ future. What would be the result of a business if one of those valuable individuals was no longer present?
Losing personnel, due to an accident or illness, can severely impact a business’ productivity and financial success and executives must be proactive. With this in mind, key person disability insurance should be a vital addition to your business clients’ portfolios. As an advisor, you can lead your business clients to define their key employees, and it may not be the most obvious choice. While these individuals may or may not be the owners, they can be people who are responsible for significant management decisions, exert a high impact on sales, or hold special client relationships. Thus, businesses should protect themselves with key person replacement insurance while keeping in mind the following reasons:
- Key person replacement insurance can help businesses avoid increased expenses associated with hiring and training a key employee’s replacement.
- Key person replacement insurance can help businesses dodge disruption of business, particularly when clients withhold or delay their business until the impact of the employee’s disability is known.
- Key person replacement insurance can help businesses limit the loss of skills, especially in a business without effective management influence.
Once valuable employees are determined, advisors can protect their business clients by advising them to insure them with key person insurance. Disability key person replacement insurance is an effective way to supply the business with funds when managing the loss of a key employee to a disability. The business applies for a disability insurance policy covering the insured key person, pays the premium, and receives the disability benefits if needed.
Because key person replacement insurance is designed to guard your business, the insured key employee must meet the definition of total disability. The owner of the policy receives either a lump sum payment or a combination of monthly and lump sum payments (depending on how the policy is structured). To meet the definition of total disability, the insured must be unable to perform the substantial and material duties of his or her key person occupation.
Don’t let a death, injury, or disability of a key employee impact your business. Allow the reasons above to serve as periodic reminders. By taking preventive actions, you can ensure that the future of your business is not threatened by unexpected circumstances.