Key employees are synonymous with results, professionalism, and character, making your company unique to your clients/customers. To you, and your business, they provide the stability and predictability you need to sustain profitability. You, your customers, and your other employees rely on this.
If you have key people (knowledgeable, leaders, skilled and reliable resources) whose contributions are so crucial that, without them, your business risks failure, key-person insurance should be considered to protect your business by giving you the financial wherewithal to regroup in the event of their loss.
Are the premiums for key employee insurance manageable? In my experience, owners express that they are lower than expected. In fact, they may seem profoundly insignificant compared to the financial hit your company could take without that key person. The cost of coverage depends on several factors, such as the amount and type of coverage, the nature of your business, and the medical histories and ages of the insured parties.
Example: Female, 44 years old, non-tobacco user, A+ rated company, $500,000 benefit, 20-year-level premium: Annual cost = $510.
As most of us know, business is built on relationships. Losing a personality (be it an executive, manager, salesperson) that has built core relationships for your business will likely result in significant client/customer attrition. To some of your customers or clients, “things just won’t seem the same.” As a result, you’re looking at the real possibility of decreased revenue for the company.
In addition, there will undoubtedly be costs to recruit and train a replacement, with the goal of them filling the shoes of their predecessor. Finding highly qualified people in today’s tight job market is not easy (it's especially challenging in south-central Wisconsin). Wages are higher now than ever, and there is plenty of competition for good people. Once you have your ideal employee on the payroll, they will need time to grow into their role as the “new key person.” Time is money, and a reliable source of cash can help fill this profitability void.
What are the potential advantages of having this insurance in place? The immediate liquidity provided by the insurance company to compensate your firm for the income lost related to the loss of life or disability of the worker. These liquid funds also put you in a position of strength, buying you some breathing room as it relates to making financial and hiring decisions. Your preparation in the event of a loss may also reassure creditors, lenders, and vendors. If your business is incorporated, the insurance benefits can help alleviate the concerns of investors and shareholders.
To discuss your situation, as well as your options as they pertain to key-person insurance, please send me an email or give me a call (608.835.1241) today.