In addition to life and disability insurance, companies have several options available to cover the costs of replacing a key employee, executive or owner in the event of a disability, death or retirement. There are key man life insurance alternatives, should a traditional life insurance policy not meet your exact needs.
The following list describes possible key man insurance alternatives.
Key Man Life Insurance Alternatives To Consider
1. Use the Personal Funds of the Business Owner(s)
This option is not always a good source as most business owners reinvest their money back into their businesses anyway and therefore do not maintain large sums of available liquid assets on hand.
2. Finance the Costs Out of Company Cash Flows
Also known as self insuring this approach is equivalent to doing no planning at all. If a key employee or business owner dies or becomes disabled, in most cases, cash flows will decrease and create a significant financial strain on any company. Therefore, the cash flow may not available to cover the ordinary operations costs much less the cost to recruit, hire and train a capable replacement.
3. The Business Can Borrow the Funds
The business may be able to borrow the funds from a lender. The business then pays back the lender over time thereby reducing the immediate financial impact of the loss. However, as in the case above, the death or disability of any key person will likely hurt cash flows and may also affect the borrowing ability of the company. Furthermore, the additional interest expense may be excessive and burdensome over time.
4. Establish a Business Sinking Fund
A sinking fund allows a company to accumulate the dollars needed over time. However, there are serious consequences if a key executive or business owner dies prematurely or sustains a disabling injury. In this case, the sinking fund would likely be insufficient to cover the expenses of replacing the key person.
Using Life and Disability Insurance is the Smart Solution
By far the easiest and most economical way to cover the risk associated with the untimely death or disability of a key employee or executive is with key man life and disability insurance. Both life and disability income insurance will provide liquid funds to cover the costs of recruiting, hiring and training a key executive at the exact time they are needed.
They also provide cash that be utilized to cover short term operating expenses or buy time till the right replacement can be located. Furthermore, the cost associated with implementing key man life and disability insurance is very economical consider the alternatives.