INDUSTRY INSIGHTS
Key Person Insurance: Protecting Your Business Against the Loss of Critical Talent
Businesses spend significant time protecting physical assets, managing financial risk, and planning for long-term growth. Yet one of the most significant exposures many organizations face is often overlooked: the loss of a key individual due to death or disability.
Key person insurance provides businesses with a way to mitigate the financial and operational impact of losing critical talent. The following overview outlines how key person insurance works, why it is important, and how it can help organizations maintain stability during unexpected events.
HOW IT WORKS:
There are two main types of key person insurance:
1. Key Person Life Insurance: Available as a term or permanent insurance policy that provides a death benefit to assist with any costs that come from the death of a key employee.
2. Key Person Replacement Insurance: Provides funds to cut the losses incurred from replacing an employee (whether it is permanent or temporary) if they become too sick or hurt to work.
WHY IS IT USEFUL?
Key person insurance can offset the cost of finding a replacement and any resulting loss of revenue during the training of the replacement. It can also cover the costs incurred for temporary staffing. Showing this type of coverage indicates to any creditors and clients that you are financially prepared.
While key person risk affects organizations of all sizes, the impact can be especially pronounced in private equity-backed companies. In these environments, the loss or disability of a key individual can directly affect enterprise value, operational continuity, and investor confidence.
KEY PERSON PROTECTION IN PRIVATE EQUITY
HOW IT WORKS:
1. The Private Equity firm identifies one, or potentially several key members at the company they have acquired or invested in.
2. Key Person Disability should be considered for all employees who, if disabled, would cause financial or cultural impact and hurt the PE investment.
WHY IS IT USEFUL?
When you are having the conversation around Key Person Life Insurance with your Private Equity clients, including Key Person Disability Insurance should also be discussed. An individual is statistically far more likely to become disabled during his or her working career than die. This increases the need to protect your PE clients against this risk.
SPECIALIZED PROGRAM OFFERING
- Guaranteed Issue up to $10M for PE transactions only.
- Only one life is required to get the Guaranteed Issue offer.
- Requires Permanent Total Disability.
- 5-year term duration with a 12-month elimination period.
- Can be put in place without requirements or notification from the insured.
- Key Person DI is important as a disabling event is far more likely to happen during someone’s working career than death.
- Should be part of every conversation around Key Person Life Insurance.
info@thehausergroup.com
(513) 745-9200
5905 E. Galbraith Rd., Suite 9000
Cincinnati, Ohio 45236