It’s a given that most companies would carry key man life insurance or buy/sell life insurance on the CEO. Any company that thinks they are too small or too large for CEO life insurance coverage really hasn’t thought through what would happen if that person didn’t show up to work on Monday.
When that question gets asked most thoughts go to how the company would carry on. Who would be in charge? Who would call all of the customers and assure them that things will be just fine? Who will have that talk with the bank if there happens to be any outstanding notes to let them know how that will be handled? Some of the answers will be simple but when you get to customers and bankers and shareholders, they are going to need to know that the sudden disappearance of the CEO doesn’t put the company on a financial slippery slope. Often those customers have chosen to do business, the bankers have chosen to extend credit and the shareholders have chosen to invest in the company because of their belief in or relationship with the boss.
Key man life insurance is meant to address these kind of issues. Depending on the size and complexity of the company, an infusion of cash from life insurance from $250,000 to $100 million is exactly the kind of reassurance that people need to know that doing business with or investing or lending to the company still has the full faith and strength of the CEO they trusted. It’s there because he or she planned ahead knowing that the company survival depended on making sure the boat didn’t slip beneath the waves upon their death.
This person doesn’t have to be the CEO, the head cheese. More often than not there are other people in the company, the idea people, the get it done supervisor, the sales person that keeps everyone working overtime, that would cause significant turmoil if there was a sudden need to replace them. Unfortunately it’s hard to put away the kind of money that would smooth over the situation if the person just jumped ship, but in the case of permanent disability or death insurance can make the transition easier. It provides money just to keep things calm and it can also be a way to come up with the kind of money to attract an equal to or better replacement.
The buy/sell side of things can have that same calming affect. If a partner in a company dies the bad things that can happen range from the company having to liquidate to buy out the deceased partner’s family to a member of deceased partner’s family becoming the new partner. With buy/sell life insurance there is no scarey scenario because the living partner has the money available through the policy to purchase full control of the company at an already agreed upon price from the deceased partner’s family.
Bottom line. Companies die every day because someone critical to the company dies or because a partner dies and no agreement has been put in place for the succession of the company. If you have any questions or would like to see just how little this kind of coverage can cost, call or email me directly. My name is Ed Hinerman. Let’s talk.