By Jack West, national account executive, Association Risk Management Services, Federated Insurance®
Like most business owners, there is one or more go-to employees when it comes to the day-to-day operation of a company. They have the management skills, technical know-how, experience or customer relationships upon which owners rely – trusting them to make the right decisions when not available. They can be at any level or in any position, but they are people the business can’t do without. Now that a business owner has them on the team, what would happen if the company were to lose one of them due to a premature death, long-term illness or disability, or another employment opportunity?
Fortunately, it’s possible to offset the financial burdens the business may face as a result of the loss of a key employee. The first step is to identify them. In general, key employees are individuals whose departure could create genuine setbacks for the company, both logistically and financially. They may have years of experience with the company or the industry. Perhaps they have specialized skills that require extensive training and knowledge that would be difficult to replace. Is there someone for whom the company doesn’t have a backup? Don’t forget to include the business owner – he/she is a key person too.
Once the company has identified the people, consider the cost of replacing them. The company will need to advertise to recruit potential replacements. Companies may need to adjust pay or offer a signing bonus to attract candidates with the skills and work experience needed. In addition to the monetary costs associated with hiring and training a replacement, the process also will require a business owner’s time. It’s estimated that the cost to replace mid- to high-level employees can range from one-and-a-half to four times their annual salary. 1 Can the business absorb those costs, especially with little notice?
After the company has determined the people and the cost, consider the options for mitigating the risks it could face. Life insurance is a cost-effective solution to help provide financial support if the company needs to replace a key employee. Life insurance can help to keep the business running and growing, provide funds to attract, recruit, and train a replacement and replace lost profits. It also can provide time and flexibility for survivors to make necessary business continuation decisions if the key person is the business owner or another owner. While the policy death benefit will provide a lump sum in the event of the insured employee’s death, the cash value of a permanent policy also can be accessed through policy loans and withdrawals during the employee’s lifetime.
Don’t risk the short- and long-term success of the business by not planning for the loss of a key employee.
References
- Gallup.com. This Fixable Problem Costs U.S. Businesses $1 Trillion. Accessed 7/28/2022.
Jack West is a national account executive in the Association Risk Management Services department for Federated Insurance. West is responsible for overseeing Federated’s national affinity relationships as well as working to secure new association partnerships. He is a graduate of the University of Wisconsin-Whitewater with a degree in marketing. Upon graduation, he started his career with Federated in 1997, holding the positions of marketing representative, arms account executive, district marketing manager, arms field manager and arms national account executive. Founded in 1904, Federated Insurance has built a strong reputation of offering competitive products supported with value-added risk management programs and services. The company is rated A+ (Superior) by A.M. Best® and has been named to the Ward’s 50® Top Performers list.
This article is for general information and risk prevention only and should not be considered an offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.
More information: www.federatedinsurance.com