KEY PERSON LIFE INSURANCE
Andrew
Carnegie once said, “Take away my factories, my plants, take away my
railroads, my ships, my transportation, take away my money, strip me of all of
these, but leave me my men and in two or three years I will have them all
again.”
All
business success is dependent on its men and women, and every organization has
one or more key persons. Their
ability, talent and expertise is that “intangible asset value” which may
outweigh the brick and mortar, equipment, accounts receivable and inventory in
contributing to the success of the business.
Whether
the business is a proprietorship, partnership or corporation, there are key
persons, such as: the founder who
built the business; the executive who formulates and executes policy; the
engineer who schedules and supervises production; the treasurer who plans
budgets, arranges financing and controls costs; or the sales manager who
analyzes the market and promotes the sale of products or services.
The knowledge, leadership, judgment or connections of these key persons
is what make things happen profitably.
The
death of a key person can result in serious consequences for the business. Credit could be substantially impaired, or even worse, loans
would be called if the key person was a cosigner. If a business loan has been guaranteed by one or more
officers of a company, most loan documents permit the lender to call the loan in
full upon the death of any co-signer. This
can be very burdensome to a company already suffering the loss of an essential
member of the management group.
The
loss of that “intangible asset value” represented by the key person may be
greater than that caused by a fire, flood or other catastrophe.
When
insuring a loss through death, permanent life insurance accumulates
reserves that may be used for the ultimate retirement, termination or the
retraining of successors.
Businesses
insure against casualty losses and the same technique is appropriate for losses
of key persons. The difference is
that one might never have a fire, but each key person will disappear someday
through death, disability, retirement or termination.
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