But when a business loses one of its "key" people, the people most responsible for its competitive advantage to cancer, or a heart attack, or a traffic accident, the effects on the business can be costly. As well as disruptive.
Because your best people have unique talents. Special proficiencies. Technical knowledge. Influential connections, and years of experience. Which is, what makes them so valuable to your business.
And, if you abruptly lose your best salesperson, your best designer, or your best engineer, you also lose sales. Lose revenue and lose customers to your competitors.
But these people cannot simply be replaced like other employees. And, their loss can affect your company's profitability, its customer relationships, its market position, and its credit lines, as well as shareholder confidence. And, employee morale.
So what's the solution? A capital infusion of tax free money paid directly to the business, to compensate for the loss of that person's value.
Tax free money. To recruit and compensate a capable replacement. As well as replace any revenue loss during the transition.
The solution is tax free money. To continue paying that person's salary every month until he or she can recover from their illness or injury.
Tax free money. To assure creditors and customers, employees, and shareholders, that your business will continue as usual.
The solution is "key man" insurance. And, it's similar to the property, casualty, and liability coverage that protects your business against the loss of, or damage to, your buildings, equipment vehicles, technology, records, inventory and materials.
Here's how it works. With the help of your insurance advisor, you first identify the people in your company. Your most talented and experienced people. The people who give your business its competitive advantage, and whose absence would negatively affect the stability of your business.
You would then estimate:
1) The cost of replacing each of these people. Including the expense of recruiting, as well as compensation.
2) The cost of replacing any revenue loss during the transition period. And it's more affordable than you might think, because you can usually secure coverage for as little as 2% or 3% of a key person's salary, to protect as much as 100% of their value to the business.
You can even get coverage that will refund all of your payments. If they don't die, or become disabled, before they retire. And, without insurance on your "key" people, you are putting your business at risk.
For example, you could be like the wholesale distributor in Los Angeles, whose key accounts manager was killed in an auto accident. The competition immediately contacted all of their major accounts and took several them away. Which cost the company millions in lost revenue that they never got back.
Or you could be like the software company in Boston. Whose 58 year old president suffered a heart attack and was unable to work for almost 2 years. The company immediately promoted one of its vice presidents. Who, wasn't as capable or experienced as his former boss, and made some bad decisions that got the company into legal problems and irreparably damaged its reputation, before the original president was able to return and assume his previous duties.
According to statistics, the risk among any three employees, is that at least one will die before they retire, is 54%. And, the risk that one of them will be disabled before they retire is 83.5%.
So, if you've not yet dealt with the death or disability of a "key" person in your company, it's a statistical probability that you will in the future.
So, ask yourself this. Does it make sense to risk your company's profitability, your customer relationships, market position or credit lines, shareholder confidence, or employee morale, on the probability, that at least one of the people responsible for the success of your business will be permanently disabled or killed in a car accident?
Or, does it make better sense to protect your business with insurance coverage on your most valuable people? Just as you insure against the loss of your other business assets.