A Primer on Key Man Insurance?

In this day and age, especially in time of this financial slowdown, it is always good, sound advice for any company to start taking more concrete steps to protect their assets. Insurance policies are the way to go in protecting assets, and one of the most important thing business should insure are their star employees.

In a company, there will always be a small number of people (sometimes, even just one) who stands out from the rest. He or she is, effectively irreplaceable because the duties he or she has is integral to the smooth operation of the company or business, and the loss of these people could result in a massive loss if income for the company. These people are considered integral to the company’s operations and his or her loss for any reason (eg. death or retirement) will result in loss of productivity and thus profit for the business.

It is never easy, much less pleasant, to replace a person who’s been bring home the bacon for the company. To establish a relationship like this requires a lot of trust between employee and employer, and that alone is a priceless quality. If you throw in skills and experience, then the value grows even more. This is why companies give key man insurance policies to valuable members of their workforce.

The first step in the decision making process is of course the business’ powers that be, which determine which employee is valuable enough to give a key man insurance policy to. A through examination of his or her performance will be undertaken, as well as a review of his or her contribution (at least more or less) to the company’s bottom line. This, and other data gathered by the reviewing committee will be screened by the board of directors and then voted on for approval. Only then will an insurance company come into play, and the results of the review will also be submitted to them, along with health records and such. The mechanics and agreements indicated in the insurance policy, as well as the premium the company will be paying will depend on the review of the insurer, as well as discussions and negotiations with the company.

Having key man insurance for star employees is a sound way of putting cushioning measures for the company in the case of any untoward incident or situation that disables the capacity of the worker to perform and contribute to the business. The whole process of searching for the replacement (as well as the losses in productivity and profit generated by this waiting / transition period) will be thorough, and therefore long and tedious, so it is simply common sense for a company to have some sort of temporary fall back while everything is being fixed and normalized to help facilitate the change and keep the company running more or less smoothly. Key man insurance policies can also serve as a reward for employees who have retired but have contributed a great deal to the organization.