A Dangerously Neglected Asset

The most important and fundamental of critical assets to the continuation and success of any business of any size is not in its financial holdings, nor is it in the more tangible equities like office equipment, real estate and machinery.  A company’s most important assets are the people upon which it depends every day to make the pieces fit and the wheels run.  And of those people, the leaders, the key personnel are of course of significant consequence. 

Key persons can be owners or employees that play special roles, lending to corporate prosperity and balance.  They are the “rainmakers” and the decision makers.  They are integral to the present and future of an organization built upon strong outside relationships and the growth of corporate accounts.  The sudden or unforeseen loss of a key person could prove to be devastating financially and structurally, meanwhile destroying the corporate morale of other employees struggling to keep a faltering firm afloat.

The solution to such a precarious, potential catastrophe is the assignment of insurance to indemnify the loss of a key person.  Life insurance is always the first thought and appropriate in the mitigation of inevitable financial loss due to the premature death of the key person.  But what happens if he or she survives?  Consider the key person suffers a non-lethal stroke or heart attack, or becomes afflicted with a long-term illness like cancer or multiple sclerosis.  The life insurance doesn’t payout, but still the key person is incapacitated, unable to work – unable to perform the “magic” that drives the company.

It is evident that disability insurance must also be requisite to sound corporate planning, specifically for the purpose of business continuation.  Key person DI should be held in as high regard as life insurance, but such isn’t always the case.  Business owners must be taught that disability insurance is the foundation upon which strong financial protection is created.  

Key person DI is corporate income protection insurance designated to pump much-needed capital back into a business after the loss of key personnel.  Assigned at the policy owner’s discretion, the benefits are commonly used for recruiter costs to find replacement employees, to reimburse losses due to decreased productivity, to fund travel expenses for new account managers meeting with clients to reinforce existing customer relations as well as to supplement overtime payments for existing staff covering the inevitable additional workload when a firm loses an integral employee.

The insurance product itself is quite flexible and offers multiple benefit schedule options for varying corporate needs and budgets.  “Own occupation” defined benefits are calculated usually by a multiple of the key person’s salary, and paid-out, after a short elimination period, over six to twenty-four months.  Separate lump-sum-benefit chassis are also readily available in the specialty DI market.

Business continuation is an essential element of corporate financial planning, and it is so crucial for advisors to understand the entire financial picture.  Look beyond the familiar landscape of life insurance, and recognize the immense usefulness of key person disability coverage. 

-Published with permission from Perspectives, a NAILBA magazine