The importance to a business of a chief executive (CEO), or another senior person, should not be overlooked. Whether they are a key decision-maker, visionary, or entrepreneur, it may be that a business's survival and well-being hinges on the abilities of the essential person. If this is the case, then perhaps 'key man' (or indeed 'keywoman' or 'keyperson' or 'business life') insurance would be highly appropriate.
This form of insurance is often overlooked, overshadowed by the day-to-day business of keeping a firm healthy and profitable. But a moment's contemplation may allow a business to realise that their functioning may become difficult without the work of one or other keyperson. The importance of such people generally relates to their capacity to run the firm, to keep it ticking over in good and lean times. Buying keyman insurance is a way a business can handle the risk of losing such an individual. It is essentially life insurance on the key person which, when they die, may help finance a campaign to find another key person, or to work out a strategy to keep the business strong. This payoff is effectively compensation for the loss of the executive. Although most businesses would see the money as an important process in getting the firm back on track, if the firm is so dependent on the key individual that it cannot function at all without him or her, the money may also be used to cope in this eventuality. It might provide funds to pay severance to workers, and help finance an efficient and orderly closedown of the business rather than a messy closedown involving bankruptcy. Note, however, that if you are a one-person company, your family would not receive compensation from keyman insurance. Buying personal life insurance is necessary for this to happen.Key Man Life Insurance : Why Is This So Important
So if you own or have substantial interest and decision-making power in a company, and you are curious as to whether you should get this type of insurance, what should you be looking for? Sometimes it is intuitively obvious that someone in the firm keeps things running and holds the company together. If the corporation is owned by partners or multiple people a buy sell life insurance may be best. If it is not clear that someone does this, before you dismiss the idea of keyman insurance, ask yourself: who keeps the books? Who handles employees and significant customers? Who do inexperienced workers turn to for advice? If one of the executives was not employed, is it plausible that this would undermine profits, or company cohesion? To work out a loss more specifically, calculate potential profit losses and replacement costs, or consider a set of costs in a compensation-multiple formula. Once you have worked out an approximate value of your keyman, try and find the best possible policy available from life insurance companies.Insure Your Business Will Continue to Succeed
Do not let your business be undermined by the loss of a particular executive - so called Key Man. Although you may have planned ahead and installed systems to try and ensure your firm is strong and profitable in the long run, and although you might have a range of talented individuals who are driving the business forward, it may be the case that you are not fully valuing the importance of one particular individual. Do not face losing them without compensation: keyman insurance is a prudent guard against this risk.