Many organizations are protected by key-person life insurance, or at the very least have a succession plan should the key person pass away. But statistics show the risk of disability during the working years is significantly higher than the risk of death. A 45-year-old executive is three times more likely to suffer a disability lasting longer than 90 days than to die before the age of 65.
Successful advisors in this space evaluate the risk to key personnel and c-suite executives by looking at how they are leveraged against the success of the company. They ask the tough questions of their clients: What is the potential impact should your key person not be able to perform their duties? If that person left in the middle of the night, who could successfully run the company? And what would be the cost to replace that person from outside if there were no one in place in-house?
We recently worked with an advisor with a private equity client who was accustomed to purchasing key person life insurance when acquiring new companies for their portfolios. The private equity firm lost a CEO of one of their key portfolio companies after he suffered a stroke. The firm only purchased key person life insurance on the executive and therefore incurred a financial setback keeping the company afloat while searching for their next CEO.
With the financial impact of losing one of the portfolio companies’ CEOs fresh in their minds, the private equity firm decided to expand the requirements of key person insurance to include key person disability coverage on a moving forward basis. Exceptional Risk Advisors bound $6 million of key person disability insurance to mirror the key person life insurance policy for the newly acquired portfolio company’s CEO. As a result, the advisor deepened the relationship with the private equity firm by formulating a comprehensive key person human capital program, inclusive of coverage for both death and disability.
If you want to thrive in this space, you need a trusted partner, a basic education on the product, and the willingness to ask the tough questions. The next time you are working on a key person life insurance policy, remember to discuss protecting your clients from the greater risk of disability!
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