By Team CR
Most businesses have a key member who's responsible for profits, possesses certain expertise or a skill set that's hard to replace, or is simply irreplaceable to the organization. They are the people who are so important that when they exit the company, either by permanent and total disability or death, the company will have difficulty surviving. The work, knowledge, and overall contribution of these people to the organization is uniquely valuable.
What happens to a business when these key people are no longer capable of fulfilling their unique duties? For sure, negative repercussions and damage are inevitable. However, this doesn't mean that the company is entirely defenseless. Some measures can be done beforehand to mitigate the extent of the damage.
The company can subscribe to a Key Person Life Insurance Policy during the lifetime of the key employee. Aside from that, the company can also take disability cover on the health of the same employee.
Here are three top ways a Key Person Life Insurance Policy can save a business:
Find and train a suitable and equally skilled replacement
A key man insurance plan can provide a tax-free premium that the business can use to find, hire, and train a suitable and equally skilled replacement.
Since the key employee holds a crucial role in the organization because of his specialized skills and knowledge, potential replacements must have the same skillset. The advantage of having the funds from the Key Person Life Insurance Policy payout is that the company can allocate a certain portion of the cash for the replacement’s salary and training costs.
Recover Lost Profits
If the key staff becomes incapacitated or if he passes away, the company can quickly lose money. While most businesses insure their assets like equipment, machines, and buildings against loss, they often miss on insuring their valuable employees. Aside from income loss in the event that a key employee dies, the business might also run into other kinds of expenses. Plus, investors might also exit the moment they find out that a key employee dies.
Pay Company Debts and Other Financial Obligations
Creditors and lenders can easily feel concerned about a business’s capacity to continue operating after the death of a key person. They might doubt the company’s ability to pay its obligation to them.
If the company has an insurance premium, the same can be a steady cash flow to keep lenders and banks from foreclosing on loans, raising interest on unpaid and existing credits, and reducing credit line limits. Consequently, employees and customers are also assured of the business's stability and financial position.
The aforementioned ways are more than enough reason for you to reevaluate your decision of not getting a key man life insurance. And while everyone will eventually die, there are just people whose lives are significantly valuable to the company than others. Their skills, capacities, and health are the cornerstone of each of their organizations. In this case, the best thing to do is to talk to an insurance representative from Special Risk Term today and start protecting your company and your employees’ interest.