Hi everyone, we’ve done a few articles on keyman insurance in the past, but always feel like it’s something important to touch on at least every year to 18 months. Most people, especially newer business owners, are not familiar with the concept so here we go!!
As we all know, running a business comes with its fair share of risks (and stress) and one of the most significant is the potential loss of a key employee like an owner, partner or someone in the C-Suite. For a small business, this could be a huge setback for the business and in some cases, could mean the end of the business itself if certain protections and plans were not in place.
Keyman insurance, also known as key person insurance, can provide a safety net for businesses facing a scenario similar to what we just mentioned. While the reasons can be endless and a little different for each and every business out there, we believe there are four compelling reasons why keyman Insurance would be a valuable addition to your business protection strategy:
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Financial Stability During Transition
The sudden loss of a key employee can disrupt business operations and lead to financial instability. Keyman insurance provides a financial cushion, helping to cover expenses such as hiring and training a replacement, compensating for lost revenue, and maintaining business continuity.
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Protection for Business Loans
Many lenders require keyman Insurance as a condition for approving business loans. This insurance ensures that the business can repay its debts even if a crucial member is no longer around, thereby protecting the company’s creditworthiness and financial health. In situations like this, many times the lender will be named as a the beneficiary or a partial beneficiary on the keyman Insurance policy.
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Safeguarding Investor Confidence
Investors are more likely to support a business that has measures in place to mitigate risks. keyman insurance demonstrates a proactive approach to risk management, reassuring investors that the company is prepared for unforeseen events and committed to long-term stability
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Maintaining Employee / Partner Morale
The loss of a key person can affect the morale of the remaining employees, especially if the business is a partnership and all of the sudden one of the partners is no longer around. Knowing that the company has a plan in place to handle such situations can provide peace of mind and help maintain a positive work environment, ensuring that the team remains focused and productive. Depending on how the policy is written, this can also help take care of someone’s family in the case of a buy/sell type situation. This piece of mind knowing that all partners and their families would be taken care of if something catastrophic were to happen can go a long way.
At the end of the day keyman Insurance, in the simplest of terms, is a life insurance policy that a company has paid for and owns as a financial protection over one or more of its key executives. The reason behind the policy is completely different and not what people traditionally think of when they are thinking of life insurance. Hopefully, this got your wheels turning a little bit.
Thanks so much for the read, if you have any questions or would be interested in learning more about this or would like to take a deeper dive, let’s chat! We love collaborating.
Talk soon,
Ryan
