How to Protect Your Most Valuable Assets: Your Key People

Most business owners have insurance to protect buildings, vehicles and other important assets, but few consider insuring their greatest asset: their people.

How would your business manage after the death of, say, your lead salesperson, your sole design engineer or your experienced plant manager? How long would it take to fill that position or get someone else up to speed on their projects? How much damage would the loss of a key person cost you financially?

Key Person coverage is a type of life insurance designed to help your business recover from the loss of a person whose role is critical to your success. It’s particularly beneficial to small business owners.

“Many small businesses are started by one or two people and others are added over time to fill skill gaps,” said Derek Holmes, life insurance product manager at Erie Insurance. “Often, the key employees have different strengths than the owner, so replacing those skills and maintaining productivity after a sudden death puts a lot of pressure on the business owner and the business overall. Key Person life insurance can offer some relief.”

Imagine Your Business Without …

“Key persons” can be anyone in your business whose roles, knowledge or performance have a direct effect on the bottom line of the business.

To understand the magnitude of the loss of one of your key people, try this exercise:

• Make a roster of the leaders of each of your company’s departments – sales, operations, finance, information technology, engineering, etc.
• Document each person's financial impact on your company’s monthly and annual revenue. For some roles, like sales, the financial contributions are easy to track; for others, think in terms of the financial effects of efficiency, intellectual property and other value they add. Assign dollar figures to these contributions.
• Capture the estimated time it would take to find a replacement for that position and train them to an acceptable level of performance. Is it days, weeks, months or years? Time is money.

By quantifying the value that these leaders bring to your organization, you will gain an objective view of the risks that exist and the extent of Key Person coverage you may want to consider.

Funds from a Key Person claim can help reduce some of the financial burden of a personnel loss. If the business fails as a result of the death, the Key Person funds can be used to cover other employee severance, pay outstanding bills or provide a buffer as the business owner transitions to a new endeavor.

Does Key Person Coverage Come ‘Standard?’

Because Key Person coverage is a form of life insurance, business owners have options.

Term insurance might be ideal to cover a key person who is older and may be closer to retirement. A 10-year term policy may provide adequate coverage as you work to identify a successor.

For younger key people, you may want to consider whole life insurance, which can extend for multiple decades and sometimes at higher benefit levels.

By talking to an Erie Insurance agent, you may discover additional combinations to match your business needs, such as Guaranteed Insurability Option riders, which allows for purchase of additional coverage regardless of changes in their health.

“During your next commercial insurance review with your ERIE agent, talk about business continuation and Key Person coverage,” said Derek. “You’ve worked hard to build your business – it’s important to take the necessary steps to have insurance in place to keep it going.”

Enjoy the feeling of a future that’s well-planned and protected. Speak with a local ERIE agent today to learn more about Key Person coverage and other business continuation options.

Neither Erie Family Life Insurance Company nor its agent representatives give tax or legal advice. Please consult your attorney or tax advisor for answers to tax-related questions.

ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York). The companies within the Erie Insurance Group are not licensed to operate in all states. Go to erieinsurance.com for company licensure information. The insurance products and rates, if applicable, described here are in effect as of February 2024 and may be changed at any time. Insurance products are subject to terms, conditions and exclusions contained in the policy. The insurance products and services described here are not offered in all states. ERIE® life insurance and annuity products are not available in New York. Workers’ compensation is not available in Ohio. Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time. Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.