An Advisors' Guide to Excess & Surplus Disability Insurance

Enhancing Key Person Risk Mitigation Strategies: A Focus on Disability Coverage

Posted Wed, Sep, 13th, 2023
By Exceptional Risk Advisors

In the realm of safeguarding businesses, key-person life insurance has long been a stalwart choice for many organizations. It provides a safety net, ensuring continuity in the event of a key person's untimely demise.  However, a closer examination of statistics reveals a more pressing concern - the probability of disability during one's working years far surpasses that of mortality.  For instance, a 45-year-old executive is three to four times more likely to face a disability lasting over 90 days than to meet an early demise before the age of 65.

In this dynamic landscape, successful advisors are taking a proactive stance by assessing the risks associated with key personnel and C-suite executives.  They delve deep into the intricacies of their clients' businesses, asking the tough questions that shed light on potential vulnerabilities.  Questions such as, "What would be the repercussions if your key person were unable to fulfill their duties?" or "In the event of a sudden departure, who possesses the capability to seamlessly manage the company?"  And, not to be overlooked, "What would be the financial burden of recruiting an external replacement if there's no in-house contingency plan?"

Let's delve into a real-world scenario where an advisor adeptly introduced Key Person Disability coverage while addressing the life insurance aspect.

A dynamic CEO in their late 40s, based on the west coast, who's media company was recently acquired by a private equity firm, had been running an exceptionally efficient operation, personally overseeing crucial relationship, driving business growth, and managing all financial transactions.  The private equity firm acquired the extreme sports media company for 7x EBITDA - equivalent of just over $100 million.  

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The private equity firm identified a significant vulnerability: if the CEO were unable to fulfill their responsibilities due to death or disability, the firm risked losing their substantial investment.  Realizing the gravity of this situation, the firm resolved to secure a solution that would protect 75% of their investment.  This would provide them with a safety net, allowing them the time to strategically scale the business and establish redundancies for the CEO's key functions.  With the task in hand, the advisor was able to easily secure $75 million of key person life insurance through domestic markets, which was half of the comprehensive key person protection plan.

We stepped in with a tailored approach.  Recognizing the significance of the CEO's role, a complete Key Person Disability solution was devised.  This solution was designed to parallel the life insurance component of $75 million, ensuring that in the unfortunate event of the CEO's permanent total disability, the private equity firm would be financially protected.

To flourish in this field, advisors must establish a foundation of trust with their clients, gain a fundamental understanding of the products at hand, and most importantly, be unafraid to pose challenging questions.  When the opportunity arises to discuss key person life insurance policies, remember to broach the vital subject of shielding your clients from the heightened risks posed by disability.  It's a proactive step that can make all the difference in preserving the stability of their enterprises.

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