Key employees covered?

Referring once again to the study from the National Association of Insurance Commissioners that I referenced earlier this month, I found an interesting point highlighted in the report regarding Key Person Insurance. The report stated that those small businesses contacted were extremely dependent on just a few key people for their "success and viability". It goes on to state that among those businesses, 71% were "very dependent" on only one or two key people. While this dependence on a limited number of personnel decreased as the company size increased, over half of the firms contacted with over $1million in annual revenue, stated that they were "very dependent on one or two key people to keep operations running smoothly". Notwithstanding this, the report highlighted, to me, a glaring statistic. Of those small businesses, only 22% had obtained Key Person Insurance. The obvious statistic, 78% did not have this coverage at all, is the real point of this post. When a business has such a reliance on a few key individuals making major contributions to the success of their company, it only makes sense to obtain this valuable coverage. This is life insurance on the key individual or individuals that contribute to your businesses overall success. The funds available from this coverage would provide the following - find, recruit and train a replacement; help replace any profits the company may have earned if the person hadn't died; and strengthen the overall balance sheet of the company to assure creditors and suppliers of the continuity of the business. When you add up the potential costs/losses involved, the actual price paid for the coverage may just turn out to be worth the investment.

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