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Insuring your company’s most valuable resource

If you’re a business owner, you may have wondered whether your company needs to provide life insurance to cover the loss of a key person should he or she die unexpectedly.

If you’re a business owner, you may have wondered whether your company needs to provide life insurance to cover the loss of a key person should he or she die unexpectedly.

Consider the example of a 15-employee equipment-parts distribution business. Of six regional salespeople, one – Jack – was responsible for 40 percent of new business each year.

When Jack unexpectedly died, the company’s revenues dropped by 25 percent the following year.

Jack was clearly a key person for the business, one whose loss had a severe negative financial impact on the company. Many businesses rely on people like Jack, employees whose value to the company would be difficult or expensive to replace.

For a restaurant, it may be the chef; for a legal practice, the rainmaker. For almost every small to medium-sized business, the key persons include the owners.

Insuring a key person can spell the difference between the failure and survival of a business.

Take another example: Tom and Art were partners. When Art died, his wife Betsy took over his share of the business.

Because the business did not provide key-person insurance, Tom could not buy out Betsy. Their constant disagreements created an unpleasant working atmosphere and they lost almost half of their employees – and clients.

Eventually, Tom let Betsy buy him out at a far lower value than he would have received at the time of Art’s death, had they both been covered.

Key-person life insurance can help a company survive by helping to minimize the organizational loss and fiscal strain that can follow the death of a key employee and by helping to assure that:

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