Do your business-owner clients need key person disability insurance?Blog added by Daniel Steenerson, CLU, ChFC, RHU on October 21, 2013
Daniel Steenerson

Daniel Steenerson, CLU, ChFC, RHU

San Diego, CA

Joined: October 15, 2013

Key people in a business are employees who contribute a large percentage of an organization’s sales, growth and, consequently, income. But what if an unexpected injury or illness was to disable one of these key employees? Waiting for the employee to recover or finding a suitable replacement could take quite some time.

This is where key person disability insurance comes in. Key person insurance provides a benefit to help shore up business finances when a key person is not able to work. Your job as an insurance agent is to educate your clients about the need for adequate business income protection, and key person disability insurance is one tool that should be discussed.

The facts about key person disability insurance

Key person disability insurance policies are meant to protect business income in the event a key employee becomes disabled. With the benefit period usually ranging 12 to 24 months in length, these policies are meant to protect the business until the employee returns to work or the business can find a suitable key employee replacement.

Benefits are paid according to policy terms until the disabled key person can return to work or is permanently replaced. Contrary to popular belief, every business is at risk of having a disabled key person. Some of the most common causes of disability are heart disease, cancer and stroke, and these diseases can render employees unable to work for months — even when they work in sedentary positions.

The hypothetical example below illustrates how key person disability insurance may benefit your business clients.

Jane owns a company that sells business computer software. Jack is one of Jane’s key employees. Jack is an excellent sales person. He knows how to work well with clients and often gets referrals. His sales account for 60 percent of the total sales made by the company. If Jane were to lose Jack to an injury or illness, her business income would suffer tremendously.

See also: Living to tell the tale: An advisor's second chance

Jane’s insurance agent recommends key person disability insurance to protect the income brought in by Jack. With the policy she purchased, she has the peace of mind of knowing that, should Jack become disabled, the policy will pay the benefit for the selected period of 24 months, or until a replacement employee is found. This could be the extra cushion that keeps Jane’s business afloat during a stressful time.

Think of specific customers who would benefit from one of these policies, and make it a top priority to let them know this coverage is available. Business owners who depend on a few key employees will greatly value your recommendation. Key person disability insurance offers your clients business income protection and, most of all, peace of mind.
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