DISABILITY
THE NEGLECTED ASSET:
Selling key person DI
“Life insurance is
always the first
thought…But what
happens if he or she
survives?”
Joe Russo
Joseph Russo is an Underwriter
and Account Executive at Petersen
International Underwriters. With
over 15 years in the financial services
industry, Russo is a “specialty
market” life and disability insurance
expert, as well as the Editor-In-Chief
of Petersen International’s weekly
publication, The Communicator.
Joe can be reached at [email protected].
28
Perspectives
Q3 2019
The most important and fundamental of critical assets to the continuation and success of
any business of any size is not in its financial holdings, nor is it in the more tangible equities
like office equipment, real estate and machinery. A company’s most important assets are the
people upon which it depends every day to make the pieces fit and the wheels run. And of
those people, the leaders, the key personnel are, of course, of significant consequence.
Key persons can be owners or employees that play special roles, lending to corporate
prosperity and balance. They are the “rainmakers” and the decision makers. They are integral
to the present and future of an organization built upon strong outside relationships and the
growth of corporate accounts. The sudden or unforeseen loss of a key person could prove
to be devastating financially and structurally, meanwhile destroying the corporate morale of
other employees struggling to keep a faltering firm afloat.
Protecting for all scenarios
The solution to such a precarious, potential catastrophe is the assignment of insurance to
indemnify the loss of a key person. Life insurance is always the first thought and appropriate
in the mitigation of inevitable financial loss due to the premature death of the key person.
But what happens if he or she survives? Consider the key person suffers a non-lethal stroke
or heart attack, or becomes afflicted with a long-term illness like cancer or multiple sclerosis.
The life insurance doesn’t payout, but still the key person is incapacitated, unable to work —
unable to perform the “magic” that drives the company.
It is evident that disability insurance must also be requisite to sound corporate planning,
specifically for the purpose of business continuation. Key person DI should be held in as high
regard as life insurance, but such isn’t always the case. Business owners must be taught that
disability insurance is the foundation upon which strong financial protection is created.
Key person DI is corporate income protection insurance designated to pump much-
needed capital back into a business after the loss of key personnel. Assigned at the policy
owner’s discretion, the benefits are commonly used for recruiter costs to find replacement
employees, to reimburse losses due to decreased productivity, to fund travel expenses for new
account managers meeting with clients to reinforce existing customer relations as well as to
supplement overtime payments for existing staff covering the inevitable additional workload
when a firm loses an integral employee.
The insurance product itself is quite flexible and offers multiple benefit schedule options
for varying corporate needs and budgets. “Own occupation” defined benefits are calculated
usually by a multiple of the key person’s salary, and paid-out, after a short elimination period,
over six to twenty-four months. Separate lump-sum-benefit chassis are also readily available in
the specialty DI market.
Business continuation is an essential element of corporate financial planning, and it is
so crucial for advisors to understand the entire financial picture. Look beyond the familiar
landscape of life insurance and recognize the immense usefulness of key person disability
coverage.
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