Choosing to buy key person insurance for my business

BY: FAZAAD BACCHUS 

A key person insurance policy protects the business from catastrophic failure due to the death or disability of a key person in a business. The policy is owned by the business, paid for by the business and the proceeds are payable to the business. It may be the one insurance policy that keeps your business afloat if you were to die or become disabled. It may be the only policy that keeps your employees in a job and your legacy lives on after you are gone.

Every business owner knows the hassle of operating a business. It starts with big dreams, a business plan, and hope for your future. However, this quickly turns into a nightmare for many. There are issues regarding the financing of your business that you may have to contend with. A loan may not be disbursed on time, putting you in the red from day one. Then there are staffing concerns that need to be addressed, the right people, the right training and the understanding of occupational health and safety concerns etc.

The new business owner is swamped; soon going to be opening day and everything is hectic. But as the day approaches and as the days go by, things become a little more manageable. Now things are a little more in place and everyone knows exactly what to do. The wheel is spinning as it should, and the business is making money. At the center of this wheel is a cog also known as the key person. What do you think will happen if this cog or key person was removed? Well in terms of the pure physics of the matter, the wheel will run off into another direction and end somewhere in the ditch unless you had another cog to replace it with. In a business setting, replacing your cog or your key person is not that easy, and the losses sustained can be catastrophic.

How can one protect their business from this catastrophic loss if the business loses the ability to run on a day to day basis and what can be expected if the business cannot? The first thing that we need to look at is in the event of death. A business loan can be called or demanded due to the death of an owner. When this happens; the business must scramble for capital to pay off the bank. If they cannot raise the necessary finances, the business collapses leaving the employees and families without jobs and income.

In the event of a disability of a business owner, the owner cannot attend work but still needs some form of income, where will this come from? In addition, his expertise and skill will have to be found from someone else. This person may require training, and all of this, takes time and many mistakes can be made during this period while the new person adjusts to systems, customers and suppliers alike. This is a turning point for many businesses where they will fail or struggle through it.

You can avoid this situation by purchasing key person insurance. It doesn’t have to be an expensive policy and it will save all that you have spent years to build.