This is especially true for key employees, such as top sales performers, top managers, and other employees with unique skill sets that set them apart from the workforce. These employees drive sales or are senior managers which the company has come to depend upon.
If these key employees were to perish or become disabled, the impact on their family and the business could severely hinder the ability to compete in a free market.
One of the best ways to protect a business from this type of loss is with key person insurance.
Key person insurance is quite simple — the company purchases a life or disability insurance policy on the employee in case of an unfortunate incident. The company pays the premiums and maintains the policy. The company also receives the death or disability payment.
The policy benefit is designed to ease the financial burden on the company. This allows the company time to regroup and find a suitable replacement for either the short term or long term.
Finding a replacement can be a costly endeavor therefore the death benefit provides assistance and time to conduct an adequate search.
If the company didn’t have this financial support, it might feel obligated to hire someone quickly to fill the vacancy, resulting in an unsuitable hire.
In the event a key employee becomes disabled, a disability payment can help keep cash flows positive as everyone awaits the healthy return of the key employee. This is especially true for smaller businesses where the loss of a key employee can be disastrous.
The monthly disability payment can be used for anything from meeting financial obligations to hiring a temporary employee.
Unlike other insurance solutions, key person insurance policies have a very specific focus. They are designed to help protect the interest of the business in the untimely event of a disability or death.
If the success of your small business is dependent upon a key employee or two, then you may want to make sure your business is protected.
You can discuss your specific situation with your financial adviser or insurance specialist.