Critical Employee Insurance

In order to take out life insurance on a person, one must have something called ‘insurable interest’ in the individual in question. In laymen’s terms, this means that you would incur some kind of tangible loss in the event of their death. For this reason, in most cases, life insurance is typically taken out on family members. However, there are instances where it is appropriate for a business to take out a life insurance policy on one or more of its employees. This is not true for just any employee. Employees with entry level positions and little training who could be readily replaced do not qualify. In most cases, even mid level employees do not qualify. The only employees who qualify are those that can reasonably be classified as critical or key employees.

What is a critical or key employee? This is an employee in a high position within the company who has specialized skills and knowledge which could not be readily replaced. Not only that, it must also be an employee who is so valuable to the company and so essential to its ability to function that their sudden and unexpected demise could be catastrophic for the company. In most cases, key employees are people like founders or vice presidents. But what if you are running a small but rapidly growing business? What if that growth depends heavily on one or a few of your best sales people? What if sales for your industry is heavily dependent upon specialized knowledge or years of industry specific experience? Could loss of such a person cripple your company?

Potentially, yes, loss of one of your best sales people could, in fact, cripple a small but rapidly growing company. Are you investing capital to grow your production capacity to meet the demand created by one or just a few of your sales people? Are you making plans to move to a larger facility or more spacious offices based largely on the sales of one or just a few people? What would happen to those plans if one of these people suddenly died? Could you still make payroll? Would the infrastructure improvements still make sense or would you find yourself suddenly over your head and drowning in a pool of financial hot water? Would all your hopes and dreams come crashing to the ground in a sea of red ink if you lost someone in particular? Or would you just hire a replacement and carry on, business as usual?

If one of your sales people is critical to the ongoing success and even survival of your business, you may have insurable interest in this party and good reason to look into key employee insurance coverage for them. A professional insurance broker can help you more thoroughly answer any questions you may have on the topic and put some hard figures on paper concerning the abive general questions. If the life of your business hinges on a single employee, then financial protection is well advised.

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