Purpose of Key Person Protection
What will it cost to hire a replacement for your key person? Executive search firms typically charge at least 3 months salary. Add to that the lost time until the person gets up to speed, training costs, relocation expenses and lost productivity during this period. The total costs easily exceed $100,000.
For some small companies, the loss of a key person can affect the relationship with your major clients, your suppliers and your bankers.
If a key person has some exceptional skills, knowledge or technical ability. The loss can severely impact the ability to the company to perform their duties for existing clients and reduce their ability to attract new clients.
You can fund the loss of a key person with existing cash flow. However, if the loss of a key person impacts this cash flow, you may not be able to fund their replacement.
You may be able to borrow the funds to fund their replacement. But, will your banker loan you the funds if the future of the company rests on the ability of the key person.
Life insurance is a very low cost alternative. For example, a $100,000 coverage for a 40 year-old male could cost less than $15 per month.