The first step to solving any problem is identifying the issue. If you’ve determined that your business requires key person insurance, then fantastic, you’ve completed phase one. For business leaders who recognize a need for key person insurance, the next step is figuring out how to get the best possible key man insurance policy for your business. Finding the right coverage at the right price could save a company significant amounts of capital over a long period of time. Check out these three tips to ensure that your company gets a good deal on your next key person policy:
Identify the Right Candidate
Technically speaking, a company can designate anyone as a “key person” (as long as they have their permission to do so). In a practical sense, though, it doesn’t make much sense for businesses to pay life and disability insurance premiums for employees who don’t contribute to a substantial portion of business revenue, or who aren’t integral to the company’s success. As such, an ideal candidate for key person insurance should meet some or all of these criteria:
- Be a high-ranking member of the company.
- Possess specialized knowledge.
- Contribute to 10% or more of overall business revenue.
- Possess skills, knowledge, and/or contacts that would make replacing them prohibitively difficult.
Remember, just because someone is excellent at their job, it doesn’t mean they’re a good candidate for key person insurance.
Finding the right coverage at the right price could save a company significant amounts of capital over a long period of time.
Calculate Coverage Level
Once business leaders have selected the right candidate(s) for key person insurance, they should then calculate the amount of coverage they require. Securing an insurance policy that doesn’t account for the full-scale of the financial loss of a key person could leave your business short-handed should the worst come to pass. Alternatively, paying a higher premium for more coverage than your business needs could cost your company thousands over many years. Thankfully, business leaders can use this free key person insurance calculator to form an approximate estimate for the amount of coverage they’ll need moving forward.
Compare Insurance Offers
Does Every Business With Multiple Owners Need a Buyout Insurance Policy? The short answer is
Different insurance companies use different means to determine a person’s health. And, how an insurance company rates a person’s overall health will have a direct correlation on the price of the insurance policy they offer. This means that two insurance companies may receive the same application for life insurance for the same 55-year old man and come back with very different policies and premium prices even though the amount of coverage and coverage length are exactly the same.
The problem for business leaders is that the quotes that insurance providers give are done so before a health evaluation is performed. Just because an insurance company is offering a business the lowest quoted price for an insurance policy, it doesn’t mean that the actual price will be the lowest available on the market. So business leaders are essentially forced to guess when comparing multiple insurance companies.
At Blue Herring, we’ve found a better way to compare insurance prices. When our clients enroll in our WayPilot Program, we take the trouble to complete health assessments BEFORE we select an insurance provider for our client. This way, we’re able to securely and confidentially approach multiple top insurance companies with accurate and detailed medical information. From there, we then secure an actual rating class approval based on the client’s medical information, which we can directly source quotes from. Through this unique and truly independent process, we manage to get the best insurance coverage at the best rates for our clients. This can mean saving tens of thousands if not hundreds of thousands of dollars for our clients.
Note, no other agency in our field offers this level of support and expertise.
Where do I start?
If you have one or more partners in your business, the first step is looking at your current legal documents to determine whether or not you have a buyout agreement in place. If so, reviewing it to ensure all partners are on the same page is a good start. If you do not have a buy-sell agreement in place, contact your corporate attorney or reach out to Blue Herring and we will connect you with someone in our network to help.
The next step is to evaluate the capital acquisition if the triggering event of death occurs. Insurance is a very efficient way to acquire the required capital and working with an independent broker who specializes in business owned insurance is the first choice to help in securing insurance. Fully or partially self-funding a buy-sell agreement is an option for capital acquisition, but the pros and cons should be weighed carefully as self-funding generally requires more cash thus reducing liquidity.
Blue Herring is an independently owned and operated insurance broker that specializes in both key person and buy-sell insurance. We have pioneered an insurance acquisition process called WayPilot that gives you the confidence you received the best deal on insurance in the marketplace.
It’s never too early to start thinking about your business’s future. Contact us for a quote to get started today.
Contact Us
If you’re considering purchasing key person insurance, then make sure to contact us at Blue Herring before you make a final decision. We’re experts in this field, and we’ll use our knowledge and experience to help you secure the best possible policy for your business’s needs.