A key person is a person who is critical to the operation of a business. If they were to die, become critically ill or incapacitated, the business would suffer economically.
Key person insurance should be taken out by the owners of a business over the lives of each other and/or possibly principals or key employees.
For many owners, their interest in the business is more than just their livelihood. It represents years of investment of their time, energy and money. It is often financial security for those they care about and their nest egg for retirement.
Ask yourself and your business partners:
- How would your business fare it one of you, as key people in the business, was to suffer a critical illness or die?
- Could anyone step in and take over the running of the business?
- Does anyone else in the business have your knowledge, expertise or contacts needed to run the operation effectively and profitably?
- Is there a risk that your clients might take their business elsewhere if there was a disruption to what you offer?
- Would profitability and goodwill potentially suffer and what impact might that have on the value of the business should you need to sell?
Key people have the management, entrepreneurial or technical skills that ensure the continued success of their business.
The success of any business depends on people as much as property and equipment. Only through planning can you ensure that your business would be able to continue operating and maintain its value should a key person die, become disabled or suffer a critical illness.