Do you need "Key Man" Insurance?

What Cleaning Business Owners Need To Know About "Key Employee" Insurance

"Key Employee" insurance insures a company against the "loss" of an employee whose services are critical to the success of the organization and the expense of replacement.
 
A "Key Employee" is:

• an individual whose specific talents, experience, background and/or knowledge provide services that make a substantial contribution to the success of the business
• one who has a direct effect on the profits of the company 
• the "one" vital factor in the success of a venture and or the security of a loan

The amount of coverage required will vary depending on the role of the key employee. With the help of a
field representative, the owner/employer can use techniques to evaluate the potential loss and effects of a key employee's death. Typically the amount of coverage requested reflects the loss of income for the business for some period of time, a percent of an existing debt, or costs associated with finding and training an individual(s) to replace specific areas of expertise.

Underwriting a "Key Employee" is difficult when documentation supporting the need and purpose for insurance are not provided with the application for insurance. An underwriter's evaluation begins with understanding how the amount of coverage was determined (does it make sense) and why this individual is KEY. Additional considerations are:

• total compensation
• if and how other key employees are covered 
• beneficiary 
• owner 
• premium payer 
• financial health of the company 
• ownership interests and 
• special talents/skills/history of this key employee.

For example, the client is the founder of successful companies and their talents/skills are directly responsible for a significant part of the bottom line results.

When submitting an application for life insurance, the field representative should submit a cover letter. A Good "Key Employee" cover letter includes:

• The cost factor to replace the employee and how it was determined
• How much it would cost the business if the employee died today; to:
  - replace this individual (recruiter, training, one or more salaries)
  - maintain accounts and continue production
  - support initiatives
  - cover loans and assure creditors that the business will continue operations
  - keep a positive cash flow and the business running
  - assure customers that the business will continue to operate
• Total salary package (includes base salary, fringe benefits - qualified/nonqualified, stock options, bonuses, vehicles etc.) 
• A BIO that provides details regarding specific talents, experiences, accomplishments, education, background and knowledge that are a key asset of this individual 
• Information on successors, other key employees and executives, and their business insurance programs

Without these factors, the underwriter may use a generic method of validation. As a result, the face amount may or may not meet your needs, so be sure to work with your insurance provider on submitting the facts on your application so you get the appropriate coverage.

This information provided by Moody Insurance Worldwide.

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Jean Hanson helps owners of commercial cleaning companies build a more profitable and successful cleaning business through her online community at TheJanitorialStore.com. Jean is also the host of the popular Web TV show CleaningBiz.tv and author of the newsletter Trash Talk - sign up today!

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