Key Man / Executive Insurance

Under a key person life insurance policy, the business owns the policy, pays the premiums and is the beneficiary. If a key person dies, the business then collects a death benefit. That money can be used to help a business replace lost revenue as they search for a replacement.

Losing a key person from your business can have negative effects that run throughout the organization. Some of them directly affect the bottom line, while others can have negative long-term effects:

• The loss can impact earnings from a lack of sales, affecting outside financing and creating internal inefficiencies from the loss of the key person.
• The death of a key person can mean the loss of skill or knowledge that is integral to the business.
• Customers who have built a relationship with the key person who has died may have concerns about the business and its ability to continue to provide them with the service they need.
• The death of the key person can be concerning to creditors and create holds on new credit or accelerate requests to pay back loans.
• Costs for recruiting and training a replacement for the key person can be significant.
• As the replacement learns the ropes of their new role, they likely won’t be as productive or generate as much income as the key person.

The cash liquidity that comes with the death benefit following the loss of a key person provides your business with the financial flexibility to recover from your loss, no matter what your challenges are. Whether you need cash to maintain profitability, pay loans and strengthen credit, or pay employee salaries, a life insurance policy on a key person can help.

You can identify key people by asking yourself a few questions:

• Are there key positions your business count on the most?
• Are there key positions that contribute a high percentage of revenue or expense savings?
• What positions create a backlog or gap when they are out?
• What positions have the most contact with clients and vendors?

These questions can help you find employees or executives who are crucial to your business, and for whom you should have a plan if they were to pass away.