Key Person Disability Insurance

Key Person Disability Insurance

We spend a lot of time discussing the proper way to insure your property and equipment. This is important, of course, because your buildings, furnishings, machinery and equipment are essential resources for the conduct of most businesses or enterprises.

But what about another important resource, your human resources? Most organizations have certain key people who are essential to the successful operation of the enterprise. These folks might be valuable because of their experience, contacts, expertise, innovation or knowledge. They might have important client relationships, hold and control the company’s major accounts, have other key business contacts or possess essential information that is imperative to the profitable functioning of the business. Losing these key people, permanently or even temporarily, could be incredibly detrimental to an organization, and could have financial consequences equally as severe as the loss of a key machine or warehouse, and perhaps even more so.

The risk is real. Industry statistics show that an individual faces a sizable risk for at least some period of disability during their working career. The greatest number of disability cases involve people in the 30-49 age bracket, with the average age for disability being 41. With modern medical procedures 67% of people who suffer heart attacks, the number one killer in America, survive, while cancer survival has reached a level of 56%. Good news, but both usually involve periods of disability and absence from work. The Federal Home Loan Banks have reported that their own data shows the major cause of mortgage loan foreclosures is disablement of the mortgagee, 48%, against only a 3% foreclosure rate due to untimely death.

And the disability of a key employee creates a hazard for businesses, too. This is especially true in organizations with relatively thin top management staffs where a small handful of key people make the whole operation run. Key Person disability insurance can provide crucial benefits to such an organization to protect it financially in the event that a key employee can’t pull his weight due to a disability. For short-term disabilities benefits could be used to hire temporary help to pick up slack or fill in for other employees who must cover for the disabled employee. For permanent disability, benefits could be used to help defray the costs of hiring and getting a replacement up to speed, make up for any loss in revenue and cover unfunded salary continuation costs. In this situation, high limit disability insurance can be invaluable to an organization by providing cash flow to help companies move forward and maintain profitability in the event of key employee disability.