Preserving Corporate Continuity
The most important and fundamental of assets to the continuity and financial success of any American business of any size is not in its financial holdings or intellectual properties, nor is it in the more tangible equities like manufactured product, real estate, office equipment or machinery. A company’s most important asset is its workforce, the actual men and women upon which the bottom line depends every day to make all of the many pieces fit and the wheels to continue turning. Those that drive the business, the leaders, the decision makers, the rainmakers, they are the key persons of extra consequence.
Key persons of a business may be owners or even employees that play pivotal and specific roles, with immediate influence on corporate prosperity and balance. A key person typically generates income for an organization by brokering deals, attracting new clients or outside investments. A key person may be a patent holder or a developer of essential intellectual property. They are a go-getter mainly responsible for a firm’s incoming business or retention of major accounts. They are integral to companies that depend upon outside relationships.
In this digital world of global networking, far-reaching social media influences and hyper-evolving technologies have made the pivotal role of the corporate rainmaker that of an art form coveted by companies seeking growth and prosperity. Key personnel are typically heavy-handed in matters of sales and marketing. No longer are traditional, antiquated methodologies of advertising and word-of-mouth referral enough to garner, manage and retain primary business contracts and the resulting flow of income related to having such significant clientele.
As insurance professionals we must dutifully contemplate and analyze the risk and potential loss and liabilities associated with the demise of a key person.
A fact substantiated and widely accepted among most industries especially those of law, medicine, insurance and high finance, the physical loss of such an asset like a key person with their expertise and connections, can prove utterly disastrous and possibly fatal to any firm in the short and long runs. A forfeiture of key personnel not only immediately affects corporate profitability, but also productivity, customer relations, employee morale and overall efficiency.
The physical deprivation of a key employee or employer on a business could certainly lead to the loss of present and future accounts, the dissolution of relationships with crucial contacts, not to mention the office workflow issues that would inevitably arise. Furthermore, corporate capital and savings could have to be allocated to finding a suitable replacement employee who would then need to be trained and paid an appropriate salary. The actual costs of the loss of a key person due to death or disability can easily put a company into significant chaos both operationally and fiscally, especially during a period of economic fragility and transition.
Insurance becomes essential in the preservation of such an important corporate presence, providing fiduciary safeguards in case of the tragic loss of a key person. The unexpected death of a key person is an obvious peril that requires attention. Term life insurance specifically earmarked for business indemnity is a vital option and usually a first thought by advisors. But as critical to corporate financial and succession planning is disability insurance. Statistics indicate that a key employee is at least three times more likely to become disabled during a working career than perish during that same time period. Financial indemnification of the unexpected loss of key personnel to total and/or permanent disablement must be paramount.
Key person disability insurance can be acquired through some domestic DI carriers, but more commonly through the Surplus Lines specialty markets like Lloyd’s of London. Key person DI products provide protection against the loss of cash flow and the typical increase in operation costs associated with the short and long-term disablement of marquee personnel.
Key person life and disability benefits are usually non-taxable and may be used at the discretion of the employer or management, commonly covering recruiter expenses to find temporary or permanent personnel replacements as well as reimbursing losses due to reduced productivity of faltering or failed accounts. Benefits are also used to provide travel expenses for new account managers attempting to keep profitable business on the books as well as supplementing overtime payments for existing staff temporarily covering the inevitable additional workload.
Term life benefits are typically payable to the corporation in a lump sum. Disability product benefit platforms offer various payout options and structures including scheduled monthly benefits typically up to 24 months after a waiting period usually less than six months or in larger lump-sum cash payments after a longer wait. Disability benefit structures are to a degree customizable, catering to the economic needs and liabilities of the corporate policy owner.
Key person life and DI platforms are meant to pump much needed capital into businesses reeling in turmoil due to the death or disablement of key personnel. In the case of the death or disability of an owner, key person insurance is the best financial tool to float a business before an inevitable internal buy-out or outside sale of the corporation to a third party.
Although it is difficult to succinctly place an accurate dollar amount on the overall value of an influential business figure, key person life and disability programs are the most robust and appropriate tools in a company’s holdings. Key person insurances are essential in minimizing corporate risks and curtailing liabilities, ultimately facilitating business continuity.
–Published with permission from Aspire Magazine.