Business
A client sat across from a loan officer asking for financing to expand his hardware. The bank wanted collateral, financial statements, a business plan, the usual list. What the bank wanted most, though it never said so outright, was proof that the person running the business would still be around long enough to pay the loan back.
Key man insurance is life insurance a business buys on the life of the person it depends on most, usually the owner. The business pays for it, and if that person dies, the business is the one that gets paid, not the family. The money goes straight into the business so it can keep running, staff still get paid, a replacement can be hired and trained, and bills, including any loan payments, don't fall behind while everyone figures out what's next. It's protection built around the one person the business can't easily replace.
For many small and medium businesses in Trinidad and Tobago, lenders look past the balance sheet and weigh the strength of the person behind it too, especially where a personal guarantee is required. Most small and medium business loans ask the owner to personally guarantee the loan, sometimes for the full amount, on top of whatever collateral gets pledged. For a business that size, that guarantor is usually one person, the one who built the customer relationships, holds the supplier credit, and makes the calls that keep money coming in. Approving the loan often comes down to a bet that this one person stays in place.
A personal guarantee looks good on paper. It doesn't keep the business running if that person is suddenly gone. Call him Rohan, an illustrative example, the hardware store owner from an earlier post: a business worth $5 million carrying an $11 million loan. If Rohan dies, the guarantee doesn't disappear, but collecting on it means the bank chasing an estate that's often tied up or short on cash, while the business itself, the thing that was supposed to pay the loan back, has just lost the person running it. That's the exact gap key man insurance is built to close.
Most business owners only think about key man insurance after a loan is approved, if they think about it at all. It works better earlier than that. A bank looking at a loan application is measuring risk, and a business that depends completely on one uninsured person is a bigger risk than one where that's already been covered. Showing up to that conversation with key man coverage in place, or already in the works, tells the bank something. It shows the business already thought about the one question the bank was going to ask anyway.
Your business may have real exposure if one person:
If two or more of those sound familiar, that's worth a real conversation, not a guess.
Depending on how the policy is structured and what it's held for, key man insurance premiums may qualify as a deductible business expense in Trinidad and Tobago. Worth asking your accountant to confirm the treatment for your company, since it can bring the real cost of coverage down.
If your business carries debt, personal guarantees, or depends heavily on one or two people, the first step is figuring out the size of that exposure. Book a free consultation at daronjacobsfinancial.com and we'll go through your debt, your cash flow, and who's really carrying the business, then work out whether there's a gap worth closing.
Rohan is an illustrative example, not a real client, used here to keep the numbers consistent with an earlier post.
Daron Jacobs, RFC, FSCP
Senior Financial Advisor
Daron Jacobs Financial Limited
Trainee Manager
Sagicor Life Insurance Trinidad and Tobago
1-868-759-8359
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