Employees usually buy short term disability insurance to protect their own finances in the event of a medical absence. But what about the company itself? Losing an essential employee for several months—or longer—can jeopardize the success of a small business. That’s why we offer key person insurance! As a lesser known, but no less useful form of protection, it’s also today’s topic. Learn more about this planning tool with some commonly asked questions.
What makes a key person?
That really depends on your business. From an insurance standpoint, it’s defined as someone essential to your success. They could be valuable due to their expertise or their stature within the company. Quite often when a business has multiple owners or officers, key person insurance is meant for them. Imagine if the person who handles all the finances for your company is suddenly unavailable for several weeks—maybe even several months! Who would step in to handle his/her duties for the duration? It might take two or three people to learn and manage this position during the absence. Even then, your day-to-day operations could still suffer. That’s why you have this policy in place.
How do we use the benefits?
In the event that you need to make a claim, the benefits can be used in a variety of ways. If it’s just a short-term disability, you can use the money to hire a temporary employee (or two) to cover the key person’s responsibilities in the interim. However, in the event of a longer absence, the money can also be used to find a full-time replacement. That often involves recruiting, interviewing, training, and other HR expenses. You may also be offering a continued salary/severance package to your key person, so this can fund that, too!
Whether you’re a small business or a large, publicly traded company, you want to stay profitable. Yet, the loss of a key person can seriously interfere with your finances. Sometimes, you just need the benefits to act a continued cash flow during a difficult time. It can boost your revenue and keep your stocks flying high, no matter what else is going on in the meantime.
Is this the same as a high limit disability plan?
Depending on how much you want to insure your key person for, it also goes by the term “high limit disability” insurance. Even though in essence you’re only insuring one individual, in a way you’re covering your entire company. If this person’s duties are essential to the success of the business, then you need to make sure your benefits are enough to cover his/her absence. At Freedom Insurance, we can work with you to personalize your policy and make sure you have exactly what you need. Not every insurance company provides this type of coverage, but as a brokerage, it’s all part of our full-service approach. Call us today to learn more about how we can protect you and your business with key person insurance!