The number of people choosing to work for themselves continues to rise. Entrepreneurs inspired by a vision and a dream set out on a course of business ownership, their only tools often being their mind, creativity and experience. If this is you, both now and in the future you may be your company’s greatest asset. Until you are able to grow your company to a large enough scale where you can hire people equally talented then train them in every facet of the organization, difficult to do, you are in effect irreplaceable. The challenge is this leaves the organization extremely vulnerable. All it takes is a boating accident on opening day to send you to the hospital and your company into a tailspin.
As a company owner or Director it is essential to consider your options to ensure around the permanent or temporary loss of a key employee. If you are that key employee consider the negative impact your inability to work would have on the dream you have so carefully built. If you are a director or investor in a company consider the financial loss that would come from the death or other loss of a key employee. While no one likes to think of the worst it is wise to plan for it. I know a family that lost everything after the sudden death of their father, the company founder. He was in his early fifties, invested all of his retirement into the start up and was on track to becoming highly profitable. When he died the company did not have the direction or leadership it needed to maintain leaving the family with no savings, investments or business income. This is of course a worst case scenario but the purpose of insurance planning is to prevent the worst case scenario.
There are around 30 million small businesses in the United States. Specifically due to their size each senior level employee makes an enormous impact on the business. Often an employee can be known in the community as the face of the business and the reason people keep coming back. In other cases one or two employees may understand the majority of the processes in place for operating the business. Due to size, lack of funds, or operational standards these employees become integral to the operation to such an extent that not having them employed would cause direct and immediate negative impacts to revenue and profitability.
As a small business when you have employees or owners that are this integral to the daily operations and the success of a business it can be frightening to consider what would happen if they were no longer there. Even if you are confident in their loyalty and desire to stay with the company there is a risk of illness or death that even the most prepared companies cannot control. To prevent harm to the business in the event of losing one of these employees insurance companies offer Key Man Insurance.
These policies insure the company for the potential loss that would occur if the owner or employee died or was no longer able to work due to injury or sickness. This policy can be bought for anyone in the organization that is viewed critical to the daily operations. In the event that something terrible was to occur the insurance policy would take effect and the business would be able to operate more smoothly.
Key Man Insurance policies will typically cover: losses caused from a long period where the persona cannot work, cost associated with hiring temporary labor and recruiting their replacement. Additionally it can protect the business from a loss of profits associated with the individuals work. In some cases it will even cover the more vague items like a loss of opportunity. An example of this is if a Director was negotiating a partnership opportunity that was scheduled to generate revenue for the company. When she died the company was unable to close the deal because the partner only wanted to work with her. This loss of future earnings may be covered under a Key Man policy.
While it may be difficult to clearly articulate the value each Director or Manager brings to an organization it is worth trying o figure out. It can be used for an essential Key Man policy and much more. When you understand the value of employees you are able to manage wisely , invest in them and achieve a common goal. Identify who within your organization is the most critical and speak with an insurance provider about your options. As with any insurance policy you need to purchase it while you can, when you do not need it. Planning for the unthinkable is a strategic step in ensuring the business legacy will continue past the current leadership team