In this economic climate where companies are doing more with fewer employees, are your clients prepared if a key employee became disabled or died? If you aren't talking to your small- to mid-size business clients about key man or person insurance, they could potentially face financial disaster. Key man life and disability should no longer be reserved just for the owners or partners of companies.
Questions that you should be asking your clients include:
1. Would your company fail if a key employee died or became disabled?
2. Do any employees have business relationships that bring in a large amount of profit? If so, would the loss of that employee lead to a loss of profit?
3. Do any employees have vital information or skills that, if lost, would lead to financial hardship until they could be replaced?
4. Do any employees have vital information or skills that cannot be replaced?
If the answer to any of these questions is "yes," then the employee(s) in question should be covered by the company with a key man life and a key man disability policy.
If a client seems resistant to purchasing key man life or disability, you should outline the financial benefits to the company should an unforeseen death or disability of a key person occur. The proceeds from key man life or disability policies can be used to:
1. Provide funds for recruiting and training a replacement key employee
2. Pay any expenses or bills while the company stabilizes
3. Help in securing loans for business growth and expansion (by showing the bank you have a thoughtful business contingency plans)
4. Strengthen the company's credit position
5. Purchase stock from the deceased owner's estate
6. Provide salary continuation arrangements to surviving spouse.
7. Help fund executive compensation planning
8. Transition the company to successor owners
You're client now sees the benefit of insuring their key employees. Now you need to determine how much coverage is needed to keep the company healthy financially. Ask the following questions for each of the employees/partners/owners who need to be covered for key ban (person) life and disability insurance:
1. In the case of a key sales person: "How much will it take to pay your company expenses if the stream of revenue they generate is interrupted?"
2. In the case of any key employee: "How long it will take to replace that individual? What are the costs associated with searching for and training the replacement? What type of compensation will it take to hire the new employee?"
3. In the case of a partner or owner "How much would be required to settle debts, payout accounts, reorganize, or keep the business running?"
4. What are the contingencies for the company if a key employee is disabled?
Once you and the client have determined how much money would be lost if a key person should die or become disabled, you can now begin assessing the persons to insure, including the age, current health, health history and salary.
You now have all the information you need to begin to compare the policies available to the client for their key employees. Your guidance during the policy comparison phase will ensure that your client will have the policies they need to protect their business if such a tragedy should happen, and once again reinforce your status as a trusted advisor for their business.
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