A business can be defined as "A commercial enterprise that works without you". If this is the reason why we start a business, does it make sense to ensure the commercial value of what we have build is preserved?
Since we have dependable people running the business, if your partner or #1 employee suddenly dies or becomes disabled, what’s going to happen to your business?
- Will your bank lose confidence in your business and demand you to pay back their loans?
- Will your biggest customers stop doing business with you?
- Will your biggest suppliers demand payments and stop selling to you on credit?
- Will your other employees resign because of the uncertainty of the future of your business?
- Will your business lose the goodwill you’ve been working so hard to gain?
- Will you lose your market competitive advantage to the competition?
- Will you lose so much income that you may have to sell some of your business assets to pay your debts and expenses?
- Will you have to sell some of your personal assets to pay off debts that you personally guaranteed?
- Will you suddenly find yourself in business with your ex-wife’s next husband? (Or ex-husband’s next wife? Here’s what I mean:
Let’s say you’re a dentist, and you and your partner, a male dentist, operate a successful dental clinic. And let’s suppose something unfortunate happens to him, and he passes away.
So, because of your partnership arrangement, his wife now becomes your partner in business – a non-producing partner. And you’re obligated to pay her under the terms of the partnership agreement (the same thing your former partner was earning).
Your new partner may or may not know anything about your business, but she is your partner, nonetheless. Now, let’s say she remarries, and her new husband could use some extra money to get his struggling electrical contracting business going.
Because of their marriage, your ex-partner’s wife’s new husband, now becomes your new partner, who has a voice in how you spend the money you are now earning by yourself, without your former partner’s help.
If you need to upgrade old equipment, purchase new equipment, add a staff member or give someone a raise, but your new partner needs money for his dying business, you have a problem.
As frightening as these questions and situations are, many business owners, after their main partners or key employees die or become disabled, have to face one or more of these painful outcomes.
Maybe you even know a business owner who had gone through or is going through this unfortunate situation right now.
Imagine running your business without your partner or key employee for even just six months, let alone five years or longer.
Like many business owners, it’s probably very hard for you to imagine losing your right-hand person – whether that’s your partner, office manager, sales manager, vice-president of marketing, or accountant – isn’t it?
You’ve probably hoped and even prayed this person would be with you forever, haven’t you?
Unfortunately, no matter how much hoping, wishing, or praying you do, no one can guarantee you that your partner or #1 employee will be working with you for even just one more week.
This is because, even if this person has promised (or signed an agreement) to work with you for as long as you own your business, a sudden disaster, such as death or disability, could prevent him or her from doing so.
Just check out these statistics. And this is for Malaysia …
- In 2006, about 300,000 accidents were reported. That is about 25,000 accidents a month!
- Out of which, about 120,000 people died.
- One out of three people will be disabled for about 6 months, and 1 out of 4 will be disabled for one year or longer… before they turn sixty-five!
Wouldn’t you agree these statistics are quite alarming?
Unfortunately, just as no one can guarantee you that your partner or key employee will be working with you forever, no one can guarantee you that you’ll be able to run your business forever, either.
You, like many business owners, are probably the most valuable person in your business. So, if something unfortunate happens to you, such as death or disability, will your business survive without you?
You probably answered… “No,” right?
In this case, what’s going to happen to your family’s standard of living if you should lose your income from your business?
Maybe you have a personal life or disability insurance policy that’ll provide enough income for your family to maintain their present lifestyle for a while.
But since you’ve been working so hard for so many years to build your business to provide you with your present lifestyle, do you want it to end just because you become disabled or die?
Of course not, right?
The good news for you is…
The Temporary Or Even Permanent Loss Of You, Your Partner, Or Your Key Employee… Doesn’t Have To Mean The End Of Your Business!
You see, thanks to the miracle of keyperson insurance protection, even if you, your partner, or your #1 employee, can’t work anymore in your business because of death or disability, your business will still be able to survive (and even prosper).
This is because, even if all of the events I shared with you at the beginning of this report were to take place upon the death or disability of your partner or key staff, keyperson insurance would provide you with the money to keep your business going until you find a suitable replacement.
Specifically, keyperson insurance allows your business to maintain its profits for a certain period, such as one year, giving you time to find and train someone to perform at the level (or close to the level) of your lost employee.
Also, if your partner died or became disabled, then you can use the insurance money from your keyperson insurance policy to buy him or her out.
And, if you should happen to die or become disabled, then your partner can buy you out. Or, if you’re the sole owner of your business, then your family can use the money to keep your business going until they find: (1) a suitable buyer, or (2) a suitable person to run your business.
When given enough time, your family likely will be able to find a suitable person to run your business, providing them with the income to maintain their present lifestyle for the rest of their lives.
Anyway, one of the main reasons many business owners haven’t protected their businesses with keyperson insurance… is they think disasters, such as death or disability, would never happen to them, their partners, or their #1 employees.
How many times have you heard someone say…
“I Never Thought That Would Ever Happen To Us!”
Probably at least dozens of times, right?
Perhaps you’ve even said it yourself many times.
Unfortunately, even though we may know entrepreneurs whose businesses had to be shut down after they (or their partners or key employees) died or became disabled, we still think these unfortunate events could only happen to somebody else.
It’s this kind of incorrect thinking that has prevented so many business owners from preparing themselves properly against their (or their partners’ or key employees’) death or disability. You’ve probably heard of this statement…
If You Fail To Plan…Then You’re Planning To Fail!
It’s fine to expect things to turn out the best for you… as long as you’ve planned for the worst.
This is because, in business, as in life, things don’t always turn out the way you wanted them to. And disasters usually strike at the worst time, when you least expected them.
Like many other responsible human beings, you’ve probably bought life, home, auto, disability, and other types of insurance to protect yourself, your family, and your valuable assets, right?
In fact, you’ve probably also protected your business assets, such as buildings, inventories, vehicles, equipment, and so on, with the right kind of business insurance, haven’t you?
Now, while losing your tangible business assets, most of which can be easily replaced, will probably disrupt your business operation somewhat, the sudden loss of a key person could be far more damaging and disruptive to the survival and success of your business.
So, if you’ve protected your tangible business assets with various types of insurance, then wouldn’t you agree you should also protect your human assets, which are so much more important than your physical assets, with keyperson insurance?
Absolutely!
Okay. Before we examine keyperson insurance in more detail, let’s first talk about…
What Insurance Really Is!
According to Webster’s Dictionary, insurance is…“A device for the elimination of an economic risk, to all members of a large group by employing a system of equitable contributions out of which losses are paid.”
And, in his book, General Insurance, David L. Bizkelhaupt defines insurance as “A plan by which a large number of people associate themselves and transfer risks that attach to individuals to the shoulders of all.”
When you buy an insurance policy, you pay money, known as the premium, to an insurance company. The insurance company then invests your money, together with those of thousands of other insurance buyers, known as the policyholders, to earn a great rate of return.
By doing so, the insurance company will have the money to pay the financial losses, known as the proceeds, that you or other policyholders may suffer because of an unfortunate event.
Because only a small number of policyholders will make claims (requests to recover losses covered by an insurance policy) in a given year, the insurance company has plenty of money left over to invest after paying all their claims.
When you buy an insurance policy to protect your business, you believe the risk of you suffering a major financial loss from an unexpected event… is greater than the premiums you’ll pay on the policy. And so you want to shift this risk to the insurance company.
On the other hand, by selling you the policy you want to buy, the insurance company believes the premiums they’re receiving from you over the insurance policy period… are greater than the proceeds they must pay out in claims.
Insurance Creates A Win-Win Situation!
Once you have the right kind of keyperson insurance, you’ll gain security and peace of mind, knowing if a sudden unfortunate event should ever happen to you, your partner, or your #1 staff, then your family won’t have to suffer financial hardships. You’ll still have the financial resources to keep your business going. And that’s a “win” situation for you.
And the insurance company also wins by adding the premium dollars you pay to those of thousands of other policyholders, and then using that large amount of money to make profitable investments. And they use their financial muscle to fuel the economy, building skyscrapers and providing countless jobs, and so on.
Although some policyholders think their insurance companies are making too much money from them, others think powerful and wealthy insurance companies enable them to sleep better at night, knowing the money will be available to pay their claims when they need to file them.
One of the biggest complaints many business owners have about insurance companies is, although they have been paying thousands of dollars in premiums over the years and have never made a claim, their premiums still keep on rising for no apparent reason.
If you feel the same way about insurance companies, I understand.
However, please keep this important fact in mind, since insurance companies calculate the premiums you and other policyholders pay based on the claim history of all their policyholders, while you may have never made a claim, others may have made several claims.
The good news is, even though your premiums may still be increasing every year or every few years, most insurance companies do charge you a lower premium than they charge a policyholder who has made one or more claims. (For the policyholders who’ve made too many claims, their insurance company may not renew their policies when they expire, leaving them with no insurance protection at all. This puts them at enormous risk.
Anyway, it doesn’t matter whether you think positively or negatively about insurance companies, you probably agree our society is better off with insurance products than without, right?
Let’s face it, without insurance products, millions of business owners in our country would suffer huge financial hardships if unfortunate events happen to them or their businesses.
Each year, businesses spend millions on insurance premiums. This clearly shows many business owners realize the importance of protecting their business assets with insurance. And, as a smart businessperson, you’ve probably protected your business with many types of insurance, right?
The challenge is, like so many business owners, you may not have the right keyperson insurance coverage, enough protection, or you may be paying too much for the protection you have. In fact, it’s not unusual for all three conditions to apply.
Listen, if you buy the wrong piece of office equipment or computer, it’s usually not a big deal. On the other hand, if you buy the wrong type of insurance or not enough insurance, then you’re putting your business, as well as your personal assets, at enormous risk.
Now, as I’ve shared with you, through the miracle of keyperson insurance, if you (or your partner or key staff) should become disabled and can’t work, then your business will still be able to survive during the period you’re disabled.
Look, you’ve worked very long and hard to build your business into what it is today, so please don’t let anything happen to it just because you, your partner, or your key staff can’t work in your business anymore because of death or disability.
Listen to what Winston Churchill, the late British Prime Minister, once said about insurance…
“If I had my way, I would write the word insurance over the door of every house, because I’m convinced, for sacrifices that are inconceivably small, families can be secured against catastrophes which otherwise would smash them up forever.”
With that powerful statement in mind, let me now share with you…
Eight Specific Benefits Of Keyperson Insurance To Your Business
1. To replace the loss of income due to death or disability of a key person.
2. To cover expenses.
3. To pay for the cost of replacing a key person.
4. To pay debts and accounts payable.
5. To protect your assets.
6. To buyout your partner.
7. To borrow money from banks or investors.
8. To let your banks, customers, creditors, and employees know, if anything should happen to you or your key staff, then your business will still have the financial resources to keep on going until a suitable replacement is found.
Let me explain #3 in more detail for you.
When you lose a key staff, it usually takes at least six months to find a suitable replacement. This is because it’ll probably take at least this much time before the new person can do the work as well or (almost as well) as your lost key employee.
After the loss of a key employee, your goal is to keep your business going, instead of being forced to find a replacement right away. With keyperson insurance, you’ll have the financial resources to run your business while you can take whatever time necessary to find a suitable replacement. In the meantime, you can hire a professional consultant to take over the duties and responsibilities of your lost employee.
Let’s now talk about #7 – To borrow money from banks or investors – in more detail
Before a bank or investor gives you a loan, they usually want you to have a keyperson insurance policy on you and your key employee. This is because they want to make sure if something bad should happen to you or your key staff, then your business will have the money to repay them.
In fact, before approaching a bank or investor for a loan, it’s wise for you to take out a keyperson insurance policy on you and your key employee. This way, you’ll gain the bank’s trust and confidence, showing them that you’re a wise businessperson who has planned for the worst.
Okay. Next, let’s talk about…
How Much Keyperon Insurance Is Right For Your Business?
Although you probably already know which staff is your key person, let me give you a definition of a key person.
A key person is anyone whose death or disability would cause major financial setbacks for your business.
Your key person could be yourself, your partner, your sales manager, your office manager, your vice-president of marketing, your accountant, or even all of you.
The amount of keyperson insurance to buy depends on the effect the key person’s death or disability would have on your business. Now, even though it’s quite challenging for you to determine the exact effect this person would have on your business, you can use these seven factors to figure out an approximate amount:
1. Salary of the key person.
2. Experience and industry knowledge of the key person.
3. Goodwill generated by the key person.
4. Cost of hiring a replacement for the key person.
5. Loans that may be recalled upon the death or disability of the key person.
6. Loss of profits due to the death or disability of the key person.
7. Cash position of your business.
One common rule of thumb is to buy an amount equal to five to ten times the key person’s annual total salary… or one year of your business’s net income, whichever is more.
Anyway, for your security and peace of mind, let us help you figure out the right amount of keyperson insurance for your business, at the best price, and from a solid financial standing insurance company.
Congratulations for reading this special report from beginning to end!
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