Protecting Yourself & Your Small Business


(Photo courtesy of COUNTRY Financial)

The past couple of years have brought events most of us never could’ve imagined. As a business owner, you regularly take steps to ensure your business is prosperous and protected, but still the unexpected can occur. For many small business owners, their most important assets are their people – those who ensure the business will function on a daily basis. Consider if something unfortunate were to happen to one of your key people, would the business be able to operate? Having proper protections for the loss of a business partner and/or key employees can be vital for small businesses to survive the unexpected.

How Does Key Person Insurance Work?

Key person insurance is coverage designed to indemnify a business for the loss of a key employee because of unexpected death or disability. Many businesses rely heavily on the contributions of particular key employees, and their premature departure due to death or disability can have severe effects on the success of the business. Key person coverage is designed to provide the financial resources needed for the business to hire and train a replacement while also weathering the temporary financial impacts of the loss of that key contributing employee.

How to Identify a Key Employee

There are various ways to compute the economic effect of the loss of a key person. A business owner can ask herself/himself several questions to identify a key employee, including:

  • Would a potentially profitable project have to be abandoned or would a productive department have to be closed?
  • Would the employee’s death result in the loss of clientele or personnel attracted to the business because of his or her personality, social contacts, unique skills, talents or managerial ability?
  • What effect would the key employee’s death have on the firm’s credit standing?
  • What proportion of the firm’s actual loss is it willing to self-insure, if any?

Coverages for Business Owners

While key person insurance can provide coverage for your most valued employees, business owners should take other steps to protect the company should one of the owners die, become disabled, or in the event of a bankruptcy, incarceration, divorce or retirement. Business owners can discuss options like a buy-sell agreement with a trusted attorney, and an insurance representative can assist with providing coverage that will fund the buy-sell agreement if a premature death or unexpected disability occurs.

What to Expect When Purchasing a Key Person Policy

Underwriting Process

The underwriting process for a key person policy is similar to that of a life insurance policy; the key person may be required to undergo a medical exam, depending on his or her age and the amount of coverage the business owner is applying for. A business owner seeking a policy will also need to follow financial underwriting requirements by providing documents such as a corporate balance sheet or cash flow statements to ensure that the business would not profit from the key employee’s death or disability, and to offer the appropriate the amount of coverage.

Getting Started

Talking with a qualified insurance representative who is experienced in working with small business owners is imperative when it comes to ensuring your business has appropriate insurance coverages.

Fabian Clark is an insurance agent with COUNTRY Financial in Bend, Oregon. He can be reached at or 541-550-9671 with questions.

Life insurance policies are issued by COUNTRY Life Insurance Company and COUNTRY Investors Life Assurance Company, Bloomington, IL.


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