All the way from small partnerships to large corporations there is almost always one or two people that really drive the success of the company. Whether it is the CEO and the way they run the company, the head of sales without whom success as measured by sales wouldn’t exist, or the head of distribution who has made a name for the company as being trustworthy and efficient, you can almost always point to a key person in the company that should be considered for key person life insurance.
Why life insurance? If a key person dies why not just hire another one and get on with life? A key person as I’ve described it is so integral to the success and stability of a company that their death would financially impact the company.
1. The CEO of a company is almost always a key person. It is their leadership and vision that keeps a company growing and profitable. If the CEO dies there is sometimes a reluctance to do business with the company until that position is filled and a customer feels comfortable with the direction under new leadership. Key person life insurance can provide funds to make up for lost revenue during this period and also provide cash flow for recruitment of a new CEO.
2. The CFO of a company cannot be overlooked as a candidate for key person life insurance. Especially in companies where profit margins are small, or where the movement of money in foreign markets can be key to extra profit, the chief financial officer can be a key to the day to day success of a company. Why key person? How easy would it be to replace someone who had been an outstanding CFO for 10 or 20 years.
3. If the owner of a successful franchise is dependent on an outstanding manager for that success, a key person life insurance policy on that manager is just prudent planning. You may be catching the theme here that one of the things that really defines a key person is how hard it would be to replace them and not, if the company will be impacted, but how much it will be impacted, if you are suddenly without them.
4. Probably one of the best examples of a company becoming a rudderless ship is when an outstanding and motivating sales manager is lost. A good sales manager sets the tone, pace and enthusiasm of the sales force and while it would be nice to believe that sales would not be affected, key person insurance can not only help cushion a sales drop, but be used to attract the new sales manager that will keep you in the game.
5. Even in a small partnership there is logic to key person life insurance. Many partnerships are a combination or business expertise and money. If the partner with the business background dies, unless the other partner can find someone to fill those shoes, there is no future. And likewise, if the money side of the partnership dies, all the know how in the world may not save to company until they can find an alternative source of money.
6. Even in the smallest of family businesses there is usually a key person whose death could bring the business to its’ knees. If a family would want to continue a business after the death of that individual, a key person life insurance policy can provide the bridge money to help that happen.
Bottom line. In some businesses there are several key people, any of whom would leave a financial loss if they passed away. It is important to have, as a part of your business plan, a good idea of what the impact to the company would be in the absence of a key person life insurance policy.