Have you ever thought about what your business would do if you suddenly lost a key person on your team due to death or critical illness? Life insurance is often a crucial part of planning in our personal lives, but did you know that key-person insurance is designed to help your business stay afloat while looking for a potential replacement or training of an employee?
What is key-person insurance?
We asked a few local, Edmond-area insurance agents to answer some common questions regarding this type of policy.
According to Danielle Hill, owner of Hill Insurance Agency, “Key Person Life Insurance is important for any business or company that has a ‘key-person,’ which can be an owner, top sales executive, or top sales-earner as it can provide immediate cash in the event of the key person’s unexpected death.”
Over the past couple of years, many businesses have come to understand just how important this type of policy can be; with the unexpected marketplace and public health concerns, we now see having this type of policy could be the difference in your business thriving versus surviving.
Who owns the policy and how are benefits structured?
It can depend specifically on how the policy is structured but more likely than not, “the business owns the life insurance policy and pays the premium. The benefit would be used to replace the key individual or keep the business running when sales or revenue have been lost, or can even be used to pay off debt accrued to train,” Hill said.
Another way to think about key-person insurance is thinking about it as a security measure to keep your business running. Local agent Shane Luebbers-Jones of Michelle Early Farmers Insurance added, ” it is essentially just a life insurance policy on that specific key person so, in turn, the benefits can actually be structured in a few different ways.”
Because policies can vary so much based on how you decide to structure it, Jones suggests, “contact your local insurance agent and ask them directly about a key person insurance policy and how to go about obtaining one.”
Does it make sense to buy a policy right now?
Sometimes, investing in things like life insurance policies can feel pointless to a small business working within a limited income. If your business is limited on your budget, key-person insurance might be worth looking into, especially if you have a small team. “Life Insurance is valuable for so many reasons. Many businesses never consider what the cost would be to their bottom line if they lose their top earner or sales producer. As well as how they would function if a co-owner were to pass away.” Hill added.
So, where do you start? “First, determine who the key players are within your organization. Once those key people are determined, you will need to assign a value to them. For some businesses, that may be a very measurable number and for others, it might be harder to evaluate,” Jones added.
When it comes to deciding who those key players are within your business, Kip Baird with Farmers Insurance of Edmond said it best: “Basically, it could be anyone whose loss could cause significant expense, loss of time, operational issues, or ultimately, loss of revenue to the business.”
Now that you have a good starting place and an idea of who would be a part of your policy, you can kickstart a conversation with your insurance provider and be empowered to add these additional policies for peace of mind.
Where can I learn more about key-person insurance?
If you have a current insurance provider, reach out to them to learn more about your existing policy and adding key-person insurance. Any of the agents cited in this article are ready to answer your questions regarding key-person insurance.
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About Casey Farmer
Casey leads all storytelling, creative content development and communications for OK Catalyst, a research and development program within the Tom Love Innovation Hub at the University of Oklahoma. OK Catalyst programs mentor and teach researchers, innovators and entrepreneurs how to use SBIR funding to launch new products and grow their businesses. Casey also serves as the VP of Communication for IABC Central Oklahoma, a non-profit, professional development organization.