Key Man Insurance

Key man insurance is part of successful business planning.
How much key man insurance do you need?

In our July 2003 issue, we discussed the calculation of life insurance for personal needs. We are now going to discuss the calculation of life insurance for business needs, starting with key man insurance. This information is based on my own experience with key man insurance, as well as a review of guideline materials in the industry, especially those from Kettley Publishing.

In a nutshell, here are the problems that you could experience after losing a keyman employee, without the protection of key man insurance:

• The weakening of your company's credit rating
  Your keyman is akin to your firm's "right arm." Banks, investors, and financial analysts will be concerned with your business's future, when your keyman is lost. Likewise, suppliers and customers will need reassurance that your operations will continue without interruption.
  
  
• The distraction of your other employees
  The sudden loss of a keyman is shocking to your other employees, who typically lose confidence in your business's financial viability. Morale deteriorates; deadlines are not met; personal conflicts increase — all contributing to higher employee turnover.
  
  
• The requirement to meet your prior financial commitments
  You must fulfill financial promises made to the keyman's family—such as salary continuation or deferred compensation.
  
  
• The need to find, hire, and train a replacement keyman
  You must bear the financial cost (both in time and dollars) associated with this difficult process.
  
  
• The lost business opportunities
  Without key man insurance, your cash reserves are exhausted meeting the above needs. This leaves insufficient funds to invest in new business opportunites, and business growth is at risk.

Please keep in mind that there are a number of possible reasons for the loss of your key man. Insurance can protect you in multiple scenarios. For example, unexpected death is an unfortunate reality. Another consideration is the Family and Medical Leave Act (FMLA). A key employee may rightfully need to take advantage of the FMLA. The key employee, however, may be unable to return.

All in all, your keyman value is an important consideration, when determining your financial assets and business continuity. Read this additional keyman article to learn the various methods to calculate your keyman's worth—an important step in evaluating your key man insurance needs.

Please, remember to consult with a qualified professional, to confidently protect your business with a key man insurance package.

About the Author

Steven H. Kobrin, LUTCF, specializes in helping "high risk" clients obtain free life insurance prequalification. If you would like Steve to request prequalified life insurance quotes on your behalf, simply send him an email or call him toll-free at 1 (866) 633-1818.

Notice of Life Insurance License: Steven H. Kobrin, LUTCF, is life insurance licensed in all of the USA, except Alaska and Hawaii. Residents of these two states should not request assistance from Steven H. Kobrin, LUTCF. Use of this web site indicates understanding of these statements.