There are many ways in which your life is impacted by your business. It serves not only as a source of income for you and your family but also as a creative outlet for your talent and passion. Furthermore, the ups and downs you share with your business partners create a mutual bond that strengthens as your enterprise grows. When a debilitating illness or unexpected death strikes a key member of your organization, the impact is far-reaching, leaving you with both a heavy heart and a hole in your business operation.
In these times of stress, it is often the case that the affected person’s family wishes to monetize their stake in the company. This can place a major financial constraint on your business as you move ahead, and can even threaten daily operations.
Compounding the problem, financial institutions are often hesitant to extend further credit to a company whose future is uncertain, after the loss of a valuable partner. Perhaps, from the clients’ point of view, that individual was synonymous with the business itself. Without their contributions, will the business remain viable? Banks – notorious for their risk aversion- may not provide the solution. In fact, they may freeze your credit altogether.
An effective way to prepare for such a possibility is key person insurance. In the wake of a tragedy within your business’ inner circle, key person insurance gives you the capital necessary to provide the affected person’s family with the value of their share of the company, while also ensuring that sufficient funds are available to carry on with the operation of the business.
Ken Steele tells an almost unbelievably sad story about a local restaurant that utilized his services in purchasing key person insurance. The policy was delivered, signed and activated on a Friday morning, just before the lunch rush. That very evening, on his way home from work, the restaurant’s co-owner and head chef was struck and killed by an impaired driver. Amidst the grief inherent in such a loss, a small measure of comfort was provided by the policy’s coverage. This will provide confidence, which can be the difference maker as you take the first steps towards your organization’s recovery. While it can never undo the loss of such a valued individual, it can make all the difference in your business’ survival.
If a similar situation arises in your company, there will be a lot to think about. In addition to dealing with the emotional toll and personal loss, there must be focus placed on finding a replacement for such an important member of your organization. This process can be time-consuming, and in the short term may divert attention away from the key revenue generating activities that allow your business to survive and thrive. You owe it to your family, your staff, your clients, and yourself to see the business through such times of uncertainty. With this in mind, key person insurance is an important tool and one that should not be overlooked.
Ken Steele, CLU, CH.F.C
Insurance and Financial Advisor
Suite 230, 1210 – 8 Street SW