How would your business be affected if, heaven forbid, an employee who was key to your business—who has specific skills that are central to the services or products you offer—were to suddenly die? Have you ever considered how long it would take to replace that person and get your business back up to full speed, running at 100% capacity?
We’re not trying to be morbid or insensitive. But the length of time it can take to replace a key employee can be costly, even crippling to a business. What follows is introductory information about a powerful tool that you can employ to protect you and your business from this potentially devastating situation.
WHAT IS A KEY-PERSON POLICY?
A key-person policy is just what is sounds like. It is an insurance policy, traditionally purchased by a business, on the life of an employee who is key to the success of the business. It can be purchased in multiple forms, such as a term policy (usually covering a specified period of time, such 10 years) or a permanent policy (which lasts for the life of the insured).
HOW WILL A KEY-PERSON POLICY HELP YOUR BUSINESS?
In a Key-Person Policy, the business initiating the policy pays the premiums and so owns it. If the employee dies while the policy is in force, the beneficiary—which is almost always the business—receives the death benefit. Those funds can be used by the beneficiaries in any way they choose, including covering the expenses of finding a new key employee, and/or costs of lost business incurred while the key position was vacant.
There is no required dollar amount of coverage for a Key-Person Policy. The amount of coverage purchased is traditionally determined by the employer, obviously, based on the value the employee brings to the business, and how hard it is to replace him/her.
But what if your business would be harmed by losing a key employee, but not devastated? A Key-Person Policy can also be a useful tool to companies in this situation. The cost/benefit of purchasing a Key-Person Policy is always determined by answering the questions posed earlier, how much would it cost your business to lose a specific employee, and how long would it take to replace him/her?
WHY IS A KEY-PERSON POLICY USED?
Some positions within a business are fairly easy to replace. When a business loses an employee (whether to death or due to that employee resigning) there is little to no problem created. When evaluating more senior-level, key positions within a company, however, it may be much harder to replace that employee if he or she suddenly dies. This employee might not only have specific expertise in this position, but she might also have processes and procedures tucked away in her head that no one else knows.
A key-person policy is bought specifically to protect against these issues from significantly slowing or completely halting a business from functioning the way it should. They give the business owners peace of mind—because if they were to lose any of their valued employees, they wouldn’t lose their business too. The death benefit would supply the business with enough funds to comfortably replace the lost employee without suffering a catastrophic blow to the business.
WHAT ARE ALTERNATIVES TO THE PROTECTION A KEY-PERSON POLICY PROVIDES?
Businesses don’t just produce cash, they run on it. So, again, heaven forbid, but if a key employee suddenly died, what are your options for keeping your business running and the cash flowing?
Option One: you could take on the responsibilities of that key employee yourself, provided you have the skills to do so. However, this would mean that you now have twice the work, or more, than you do right now. In our experience, this just isn’t realistic for most business owners.
Option Two: you could promote another employee into that position. This is obviously the easiest and most efficient thing to do, provided that you have an employee that is ready to assume the full responsibilities of your key employee. However, given that key employees are key employees because of the level of knowledge and experience they have in what they do, it is likely that even those working closely with them will have gaps in what they know and reduced skill levels in what they need to do that could prevent them from simply stepping in to the key role. And while it is very possible to bring your current employee up to speed, doing that will likely take time and money to do so.
Having an infusion of cash from a Key-Person Policy can supply the funds need to do that, taking the pressure off of getting the replacement employee up to speed quickly.
Option Three: is the one we have been discussing here, hiring an employee from outside the company. This might be the most difficult and expensive option, and for reasons already outlined, is a strong argument for purchasing a Key-Person Policy. Receiving those funds would allow a company to take its time to find the right person for the job, including the time necessary to train him/her on company specific methods or procedures necessary to do it effectively.
A key-Person Policy is the perfect way to ensure that your business, and consequently your life, doesn’t face financial troubles during the process of replacing a key employee, and getting him/her up to speed. It opens up an array of possibilities!
WHY IS A KEY-PERSON POLICY A VALUABLE TOOL FOR A CONSTRUCTION COMPANY?
THE CONSTRUCTION INDUSTRY IS MORE DANGEROUS THAN OTHER INDUSTRIES
It is possible that every occupation in the world involves some level of danger. The construction industry is certainly no exception. In fact, it is regularly rated as one of the most dangerous industries in the marketplace. Surprisingly, or maybe not, there are some jobs within construction that are often listed among the most dangerous, and your key employees are often as the center of the danger.
After all, construction workers deal with large equipment, heavy materials, electricity, and many other things that are inherently and potentially harmful. These types of risks simply don’t exist in most other industries. And because that is the case, a Key-Person Policy can protect your business and bring you peace of mind. Not only will your business be financially covered, but you won’t have that worry in the back of your minds. After all, aren’t there enough other things to worry about as a business owner? Why not eliminate this one?
