Disability Insurance Articles

The Function Of Key Person Disability Insurance For A Company

2010-08-02

For a business, smooth operations are the cornerstone to continued success. If a company cannot deliver their service, they will quickly begin to lose both customers and money, which can spell a rapid demise. In many cases, a company operates as a team of individuals, all working toward a common goal. Should one employee take ill or be injured, the company is able to continue on with business as usual, though at a slightly reduced rate of speed. There are situations, however, where a "key person" can mean the difference between a company succeeding or failing, and should they take ill, the business can almost instantly begin to fail. In these cases, a disability insurance option known as key person disability may be considered.

Key person disability insurance is not found in a standard insurance package. Its terms must be negotiated with a disability insurance provider, and the length of the time it is in force will typically only be between one and two years. It is intended to provide a monetary allotment each month or in a lump sum to account for the fact that a person essential to the functioning of the company is not able to perform their duties. In order for a policy of this type to be issued, it must be shown that an individual is key to the operation of a business, and it must be specified how long the individual needs to be away before benefits will come into play.

In order to obtain a key person disability policy, a company must first provide proof that the skills or knowledge of the person in question would severely affect the fortunes of a business should they suddenly become unable to work. Next, the amount of projected loss suffered were they to be away must be calculated, and a length of time to find a replacement must be determined. Most policies of this type will only last between twelve and twenty-four months, as providers consider this enough time to find and train a replacement key person. The policy will specify exactly what duties it must be that the person cannot complete, and the dollar value of the payments disbursed. Typically, the paid monies can be used in any way the company sees fit to keep the business running.

While key person disability is not necessary for every business, for those that have an individual that they rely on for a great deal of expertise or sales, this type of policy may be a good choice in order to ensure that a business can stay afloat in the event of a critical key person loss.