I hope you found my last post, Managing Business Risk: Answers To Your Top Buy-Sell Agreement Questions” to be valuable.

Today’s post focuses on another area of concern to business owners – protecting the organization from financial loss due to the disability of a Key Person.

Key Person Disability Insurance Defined

The disability of a key person – employee or owner – is an oft-overlooked business risk.

Suppose your company or organization is dependent on a person with specialized skills. Imagine the impact on your organization if that person could not perform his/her duties for a prolonged period because of a full or partial disability.  Pretty ugly, right?

In such a situation, key-person disability insurance could offer an intelligent and economical solution to avoiding economic disaster. If done correctly, not only is the economic risk transferred to a third party, but the transfer takes place for pennies on the dollar.  Pretty neat, right?

The case study below illustrates how Key Person Disability coverage can work.  Keep in mind that solutions in this realm can be customized to address your organization’s particular needs, so feel free to replace the subject presented with one relevant to you — an athlete, performer, attorney, banker, executive, scientist, etc., — and increase/decrease the risk amount as it makes sense for your situation.

Case Study


A Southern California-based Asset Management & Investment firm manages a portfolio of $17 billion.



The CEO (aka the Key Person) wears many vital hats—CEO, President, Chief Investment Officer, Market Strategist—and oversees all the firm’s U.S. equity and hedge fund strategies.  In the past ten years, the firm’s assets under management have risen from $3.5 billion to 17 billion dollars, thus elevating the overall importance of the critical person’s responsibilities.



Chief Executive Officers in the hedge fund universe are unique human capital assets. Investors invest in a fund based mainly on performance attributed to the CEO.  In the event of a severe disability, cash would be needed to retain key staff and manage the winding down of the fund if a permanent disability were to strike.  With the obligation of succession planning resting on the shoulders of the Board of Directors, the Board saw a need to initiate additional coverage if the CEO was no longer able to perform his duties.  The Board’s directive stipulated that an accelerated divestiture clause be built into their investment agreements, which would allow investors to accelerate the rate at which investors can pull their funds should the fund manager become incapacitated.



A plan was designed for a $50 million key-person disability insurance policy, payable to the company in a lump sum after 12 months, should the CEO be unable to perform his duties.



With a reasonable level of key person disability insurance protection in place, an additional succession planning strategy was created to manage the associated risks if the CEO were seriously disabled.  Several sub managers were also identified as critical, and additional protection was likewise sought for four other investment managers.

But what about you?  Is your company, charity, or sports team protected from the economic impact of the disability of a Key Person?

And what if the key person dies instead of becoming disabled?  That is a story for another write-up!

I hope you’ve found this post helpful.  Stay tuned for future blog posts to learn more about addressing risks of concern to business owners and entrepreneurs.

Ever onward!

Cindy Fields