Key Person Disability Insurance

Although most modern businesses seek ways to treat their employees equally and offer a good work environment for all, the value added to the business by each person can differ. Often there are a few employees with highly specialized skills that are strongly connected to revenue. When scenarios arise, businesses need to consider what do to if the highly valued, revenue generating employees become disabled. Any harm to these employees could lead to:

  • Loss of key customers who value the unique, specialized skills of an employee or the unique, customer relationship built by the employee.
  • Lack of management necessary to keep teams of employees on task and performing at a high level.
  • Lack of expertise to accomplish the goals of the business and thereby a reduction in the competency of the business.
  • Loss of business development efforts if they are dependent on an employee’s relationships and networking abilities.
  • Drop in revenue as a result of the deficit created by the loss of the value that the employee brings to the business.

Luckily, there is a unique insurance option for businesses that are concerned about losing any key personnel to disability. The solution is key person disability insurance. This insurance focuses on preventing business from losing money when key persons become disabled and unable to fulfill the duties of their jobs.

When Should Agents Offer Key Person Disability Insurance?

With numerous insurance options available to businesses, many businesses may initially close the door on someone offering a new type of insurance – especially during tough economic times. Therefore, you need a strategy that can address all the reasons a business is likely to reject you. Figuring out which businesses are likely to buy this insurance can be helpful for an insurance broker or agency. Time is money, right?

Here are some thoughts on what to look for.

First, look for employees that are essential to the operation of a business. Those that are dependent on certain employees who are difficult to replace are likely good targets. These business can be in almost any industry. They’re likely to be smaller businesses that don’t have employees with overlapping skillsets. But in some cases, larger businesses may have a particular type of employee with some specialized skills or knowledge that they don’t want to lose – such as an engineer or a product development architect.

More typical are highly experienced employees who are connected to all the key people in their industry. These are rainmaker employees who are essential to business function and revenue generation. Other employees depend on this person (think Draper in Mad Men).

Health care workers are also uniquely skilled. Sometimes there are nurses who are hard to replace – such as those with intensive care experience or a certain type of research experience. Some employees may have skills that take a long time to develop such as luxury car mechanics. Or the employee may be in a field that no longer has new training programs and their skills are therefore extremely unique.

Regardless of the scenario, the initial focus is still your goal – look for businesses that have essential personnel who are critical to the business’s revenue. These are the people that the business is unlikely to lay off and that the business needs to survive.

Identifying these people is your ticket to selling key person disability insurance to a business. Without them, your chances of convincing a business to this coverage decreases.

How Should You Offer Key Person Disability Insurance?

Once the key person or people are identified in a business, it’s time to convince the business owner that the policy is worth it. First the business owner needs to understand the business case for this insurance. The business case is that the revenue lost from the key person or people becoming disabled is so great that it would harm the business financially. Protection from this loss would be necessary to avoid the problems that can arise from losing the key person to disability. This insurance is that protection and probably one of the only ways to support the business easily during this unexpected tough period. Businesses should think about how much will be loss with and without the insurance. Usually, the choice is clear if the key person is highly valuable. That’s why identifying very valuable employees is such a critical step in the process of selling this type of insurance.

The business also needs to know some of the facts about this type of insurance.

  • These policies are usually fairly short – 12 to 24 months in length.
  • If the employee meets the disability conditions outlined in the policy, benefits are paid to the business.
  • Payments will continue until the worker returns or the benefit period is exhausted.
  • The worker is not usually allowed to work in a similar job or receive similar compensation during the period that payments are being made. This prevents fraud.
  • The policy can be purchased for one or more people. The existing of a key person policy also does not stop a person from getting an individual disability insurance for herself or himself.

With the identification of key people in the business who the business cannot survive without, a business case, and policy details, an insurance agency or broker is well equipped to make a sale to a reasonable business owner who understands that there is more to be gained than lost with this insurance option.

The next step is closing the deal – something you should be well equipped to do. For existing clients this will likely be easier than for new clients. This insurance can be layered with other policies. For example, the owner may also have individual disability insurance and business overhead expense disability insurance. If five or more people in the company need key person disability insurance, it can be set up on a Guaranteed Standard Issue basis for easy underwriting.

Additional Key Person Insurance Resources:

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