How comprehensive is your business’s risk management plan if a key person becomes disabled or dies?
As a business owner, you already insure many assets to protect your business from potential risks: your office space, company vehicles, computer equipment, and so on. But have you insured the key people who operate your business?
Key person insurance is one vital insurance policy many business owners may be neglecting. This type of policy provides life and/or disability insurance for key people who are critical to a business’s continuing operations. For small businesses, in particular, key person insurance is an essential part of any proactive business continuity plan. Without such a policy, your company may be exposed to financial risks.
How a Key Person Insurance Policy Work
By acquiring key person insurance on your crucial employees, the company owns the policy and the company is the beneficiary. Should one of the “key people” covered by the policy suddenly and unexpectedly die or become disabled, the policy is triggered and the benefits are paid to the company tax-free.
The policy funds can be used in a number of ways including hiring a temporary replacement, covering financial losses incurred as a result of an absent key person, paying off the business’s debts or reimbursing investors. In other words, it will help preserve the value of your business and its continuation if a key person becomes disabled or dies.
Choosing the Policy That’s Right for Your Business
Whether your business is a sole proprietorship, partnership or corporation, key person insurance should be a part of your overall business risk management plan. It’s an important business-related liability that must be adequately addressed.
There are several things to consider when determining how much key person insurance you will need. Think about the projects that would be lost without these people, the amount of sales generated by them and the costs associated with replacing them.
In a country like Canada where small to medium-sized businesses account for the largest percentage of all employers, and where individual entrepreneurs are often the crux of those success stories, key person insurance is simply a must-have for any risk-averse and forward-looking organization. Having a key person insurance policy isn’t solely about planning and securing your business’s success. It also assures a firm’s customers, partners, investors, and creditors that in the event of the sudden disability or death of the owner or key person, the company will survive and thrive.
Do you have questions about key person insurance for your organization? Talk to your broker or one of our professional, certified insurance and investment advisors. We have the experience and expertise to help. Call us toll-free at 1-800-595-2150.