Key Employee Disability: Protecting Your Elevator Business

Consider the key employees in your elevator company. They might be your top technicians, the office manager who keeps everything running smoothly, or even you or your business partner. What would you do if one of these important people became too sick or injured to work? How would your business be affected? In this article, let’s discuss what Key Employee Disability means, how it affects your elevator business, as well as how to prevent risks coming from it.

Identifying Key Employees 

As you work to identify key employees, ask this question: “What impact would the business experience have if we lost this employee to sudden death or disability?” 

A key employee is one whose unexpected permanent departure from the business would result in substantial negative financial consequences for the business. Key employees can include the owner or founder of the organization; “the brains” of the business who develops ideas, strategy, or products; key income generators or drivers behind profitability; and high-performing sales people. They can also be employees who have a unique skill set, knowledge, or overall contribution that is considered crucial and uniquely valuable to the organization. 

Understanding Key Employee Disability 

What happens when a key employee becomes disabled or unable to work? If you or one of your key employees becomes too sick or hurt to work, you may find yourself dealing with some unexpected challenges, including: 

• Loss of seasoned management skill and experience. 
• Disruption of business and revenue generation. Customers, clients, and creditors may withhold or delay working with you until they know how the loss impacts your business. 
• Increased expenses for hiring and training the key employee’s replacement. 

In some cases, smaller businesses may decide to shut down entirely after the loss of a key employee. In this type of situation, the death benefits from a key life policy can be used to pay outstanding debts, distribute money to investors, pay severance to employees, and close the business. A key life policy gives a company options beyond immediate bankruptcy. 

Insure Your Elevator Business From Key Employee Disability 

Key employee disability insurance, or commonly known as key person insurance, is a policy that can protect your business in the event that a key employee becomes disabled, and as a result, the business suffers a financial loss. A key person disability policy will pay short-term benefits to the business until the key employee recovers from his or her disability, or until he or she can be replaced. 

While it may seem like an unnecessary expense, having this coverage in place can provide peace of mind and help mitigate the risks associated with losing a key person. Here’s how its beneficial: 

1. Financial Protection: When a key employee is lost, the financial impact on the business can be significant. Key person insurance helps to alleviate some of this burden by providing funds that can be used to cover expenses such as recruitment, training, or loss of profits. 

2. Business Continuity: Losing a key employee can also disrupt the day-to-day operations of a business. With key person insurance in place, a company can continue to function without the fear of major disruption. Funds can be used to hire temporary replacements, train new employees, or cover other expenses that may arise during the transition period. 

3. Creditworthiness: Key person insurance can also help improve a company’s creditworthiness. Lenders may be more willing to extend credit to a business that has this type of coverage in place, as it demonstrates a commitment to risk management and financial stability. 

4. Employee Confidence: Knowing that the company has key person insurance in place can also help boost employee confidence. Top performers may be more likely to stay with a company that values their contributions enough to invest in their protection.

Common Insurance Policy Coverage and Provisions 

Monthly benefits paid to the business usually equal 100 percent of the key person’s monthly salary, up to a maximum limit (often $10,000 per month). However, some insurance companies limit benefits to 50 percent of the key person’s salary. A business receiving benefits can use them to keep the business running and to cover the expense of finding a replacement employee. 

Here are some factors that to be considered when determining the coverage amount for a key person insurance policy: 

1. Key Person’s Role: The key person’s role can be defined as the extent to which the person is involved in the company’s operations and decision-making processes. The more crucial the key person’s role is to the company, the higher the coverage amount should be. 

2. Replacement Costs: This includes the cost of recruiting, training, and hiring a new employee to fill the key person’s role. In addition, there may be costs associated with lost revenue or business opportunities due to the absence of the key person. It is important to consider all of these costs when determining the coverage amount. 

3. Business Value: This includes factors such as the company’s revenue, profits, and assets. The coverage amount should be sufficient to cover any losses that may occur as a result of the key person’s death or disability. 

4. Debts and Liabilities: The coverage amount should be sufficient to cover any outstanding debts and liabilities, as well as any costs associated with winding down the company in the event of the key person’s death or disability. 

Protect Your Elevator Business with Key Employee Disability Insurance 

When it comes to protecting your elevator business, a key person insurance policy can be an invaluable resource. It offers financial protection in the event of the loss of a key employee and can help the company stay afloat during a time of transition. To implement a key person insurance policy for your elevator business, identify your key employees and tailor the policy to the specific needs of your company. Understand that the cost of the policy depends on several factors. It’s encouraged to work with an experienced insurance agent to determine the most cost-effective options for your elevator business. Lastly, have a plan for how the funds will be used if the policy is needed. This might include covering the costs of finding and training a replacement employee or providing a financial cushion during a transitional period. A key employee disability insurance policy provides a layer of protection for businesses that rely heavily on outstanding employees. By taking the time to carefully evaluate your company’s needs and working with an experienced insurance agent, you can ensure that you have the coverage you need to weather any unexpected events.