Every Colorado business has a Key Man or a select group of Key Employees that are vital components who contribute to generating revenue and or maintaining the successful operation of the business. Key Man Life Insurance is a policy that a business has on its key people to protect the business from the potential financial devastation occurring from their deaths. A Key Man Life insurance policy acts to support the finances of the business to allow for lines of credit or replacement costs.
The perception of your company in the public eye is important for many businesses. If you were to lose a key person who was the face of your company or a key salesman that perception could falter. If a key employee such as this were to die, profit may drop from loss of sales due to customers jumping ship. Important clients may lose confidence if the face of the company were to die and this could negatively affect the value of stock shares. Key man life insurance will financially soften the blow of a devastating loss such as this.
Many businesses will at some time or another need to extend themselves financially for one reason or another. The company may need additional funds in the form of a loan for R&D for a new product, or to purchase property, or even to expand operations. Lending institutions will look at your business, its assets and also its employees, specifically key employees. They asses the liability of the loan and may not offer the funding if they see that key people are not insured with a policy because of the potential susceptibility of loss.
What makes for a key man is that they can accomplish what others cannot because of their specific knowledge and characteristics. These elements are indispensable to the operation and practices of a company. If they are out of the picture, their expertise and knowledge may be lost with them. Key man insurance is a catalyst to outline and document essential practices and information so that their loss and their loss of info can be mitigated with directions, practices and info retained and mapped out for their counterparts or replacement. The policy benefits can also cover the costs of finding, recruiting, training and retaining a replacement employee.
If the key man who dies is an executive or principle, chances are that they have a financial stake in the company. When they pass, their stake is passed to family beneficiaries. In many cases family members are not adept to handling this financial stake in the business and can cause calamity. In other cases the family could sell the financial stake to an undesirable which could also cause disruption and misalignment. Business Succession becomes a factor here and the necessary procedures need to be put in place before the fact to outline how best to transfer financial stakes. Planning ahead of time will legally structure how things proceed in the event of a death. The right insurance policy can also work to provide funds to facilitate a buyout and maintain the company’s best interests and proper alignment.