A business may rely on a number of key people in order to remain in business and profitable. Many businesses have invested time and financial resources into these key people, and there may be significant loss to the company if one of these people were to die prematurely. The company may have reduced sales and the increased cost of acquiring and training new professionals to fill the gaps. The combination of increased costs and reduced sales/revenue can have a lasting negative impact on the business.
Key person insurance helps to protect the value of the company and ensures its continuation if a valued employee or executive passes away. Here are a few things that Key Person insurance can do:
- Eliminate or reduce the financial impact of the untimely death of a key by covering the expense of finding and training a suitable replacement
- Help the deceased shareholder’s estate meet estate tax obligations without compromising or dissolving a family business.
- Protect the business; assuring creditors and clients that the company will be able to continue as usual.
The business is the owner and beneficiary of a policy that is taken out on the life of the Key Employee. If there is a claim, then the death benefit proceeds would be received by the business – tax free. This can help provide the liquidity needed to attract and develop skilled individuals and security to ensure business continuity if revenues are negatively affected.
Who to Consider This Type of Insurance For:
- Top performing sales people (a sales person that brings more than 20% of total revenue)
- Executives (CEO, CFO, COO)
- Employees who have a technical and rare skill set that is vital to the business.
- Managers whose absence would present financial risk.
The main thing to remember is the term “unmanageable financial risk”. If there is person in an organization that provides such value that their illness, disability, or death would present unmanageable financial risk to the business, then key person insurance should be purchased.
Contact us today to have one of our advisors help quantify the amount of risk along with your accountant, and provide quotes for coverage that will protect your business from that most unexpected of events.