Protect Your Business with Key Man Insurance
Protecting Your Company Using Key Person Insurance Can Be Critical
Sep 18, 2008
Most small businesses are built around small teams of employees. Along with the owner these employees can often prove critical to the success or failure of a company. Without them your business venture might never get off the ground. And the bigger business becomes the more vital these employees may become. What you need to consider are the potential consequences to your business should a key employee be lost and how you would deal with it.
Key Man Insurance Covers Death
There are a number of reasons that you might lose a key employee. But key man insurance deals with the most critical situation of all. The death of a key employee. Ask yourself what would you do if you were to lose your top salesman, or maybe your General Manager. These people might be critical pieces to the business. What if you have a partner and they were to suddenly die. How would you deal with this sudden loss?
How Does Key Man Insurance Work?
So how exactly does key man insurance work? Well it starts with the purchase of a life insurance policy. This policy is actually taken out on key employees and paid for by the company. So that in the event of a key person dying then the company can collect on the policy. Companies do this to help compensate for the potential lost revenue that the company may incur because the employee is gone.
An Example of Loss
An example would be a company that just lost its top salesperson. That salesperson may have been personally responsible for a number of important clients. Now that the sales rep is gone those clients may be thinking of going elsewhere. How much would it cost you if you were to lose a client? Another aspect is the cost of finding and hiring a replacement for the person you lost. This would be an unexpected expense that you may not be prepared for.
What if the Owner Dies?
Another aspect of key man insurance is protection against the loss of the owner. What would happen to the business should the owner suddenly pass away? Having insurance allows the family time to decide what to do with the business. Maybe they are prepared to take over but need time or they would like the chance to sell the business. The funds from an insurance settlement can provide a cushion that allows them the time needed to make a responsible decision. Otherwise the business might be forced to close prematurely. So whether you are in the midst of starting a small business or already have an ongoing business venture you need to consider key man insurance if you haven’t already.
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