In the world of mergers and acquisitions (M&A), key person life insurance is often a given; most deals account for it to protect against the unexpected loss of a key executive. But what about the “what ifs”?
What if the bigger threat isn’t death but disability? What if life insurance can’t be secured due to underwriting challenges? What if the policy is delayed and the deal can’t afford to wait?
Disability: The Overlooked Threat
While life insurance is critical, the risk of a key executive becoming disabled can be even more damaging during a company transition. If a CEO or founder is sidelined during integration, it can derail strategic plans and shake investor confidence. Traditional disability insurance typically caps out at $750,000 - far too low for high-stakes deals. In contrast, high-limit key person disability insurance from specialty markets like Lloyd’s of London can provide multi-million dollar payouts to protect the business.
Case in point: After a CEO at a private equity-backed company suffered a stroke, the firm realized the critical need for disability coverage. For a future acquisition, they implemented a $6 million disability policy that would pay out if the CEO became incapacitated, helping ensure the success of the deal and continuity of leadership.
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Accidental Death Insurance as a Strategic Safeguard
Not all M&A timelines allow for traditional life insurance underwriting, which can take months. That’s where accidental death & dismemberment (AD&D) insurance comes in - it can be put in place quickly to provide immediate, short-term protection.
In one case, a global investment firm required life insurance as part of a majority acquisition but time constraints made full underwriting impossible. A $25 million AD&D policy was secured with a 60-day term, giving the client financial protection until permanent coverage could be established.
Strategies to Grow Your Practice in 2025
As deal activity is expected to surge in 2025, insurance advisors have an opportunity to deliver more than just policies - they can offer proactive risk management. Here are three ways to strengthen your practice:
- Collaborate with attorneys and CPAs to educate them on the need for key person coverage.
- Share success stories to demonstrate the value of disability and AD&D insurance in real-world M&A scenarios.
- Partner with experts to access high-limit solutions and better serve complex cases.
In M&A, people are just as critical as profit. Protecting key leaders with the right insurance coverage isn’t just smart - it's essential. Advisors who lead with this strategy can help ensure smoother transactions, stronger client relationships, and a thriving practice in 2025.
This post was adapted from the published article as seen in Insurance Journal magazine written by Chris Lack, Partner at Exceptional Risk Advisors. You can read the full article here.
