An Advisors' Guide to Excess & Surplus Disability Insurance

The Business Case for Key Person Disability Insurance

Posted Wed, Aug, 10th, 2022
By Exceptional Risk Advisors

Contractual key person insurance obligations are most often found inside the mergers and acquisitions arena.  They're established when one company buys another company and the acquisition agreement, or purchase agreement, requires "key person insurance."  Your average advisor will recommend life insurance on the named key executive, but an exceptional advisor is keen to understand that a "key person insurance" clause within a purchase agreement requires corporately owned key person life and disability to keep the company - and the deal - afloat.

Other ideal candidates of key person disability are truly irreplaceable individuals that drive the success of a company, like hedge fund managers, private equity and/or asset managers, business owners, renowned surgeons for a hospital, chief technology officers, and key relationship managers.  However, in a disturbing survey of some 1,400 business owners, it was revealed that less than 15% had a plan if that key person were to become disabled.   In today's competitive business environment, protecting the value of a star executive is more critical than ever. 

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In your next client meeting, ask: "What would happen if your key player became disabled from an accident or serious illness, who could successfully run the company?  And what are the financial implications to the company to replace that person from the outside if there were no one in place in-house?"

We recently shared a case study of two key hospital network executives.  The CEO & CFO were the driving force behind a hospital network's continued growth and financial stability.  The advisor on the case was challenged with securing an adequate amount of disability insurance to protect the hospital should one or both deal makers go down due to an illness or disability.  We designed a $30 million and $15 million key person disability policies for the CEO & CFO respectively.  The policies, payable to the hospital in a lump sum after 12 months, provided a financial cushion for the hospital board should the CEO and/or CFO be  unable to perform their duties. 

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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.  Please book a meeting with our business development team here to get started!