Protecting the financial security of your business in the event of a key employee’s death may be one of the most important risks to insure. Key employees are generally highly compensated and are often involved in managerial decisions and/or setting the vision for a division or the entire company.
A key employee does not need to be an owner to exert a significant impact on sales, or revenue in general, and/or enjoy a special rapport with customers.
The Key Concepts with Key Person Coverage
- Key person life insurance reimburses a business for economic loss when an employee who is critical to the success of the business dies.
- Key employee life insurance is not a specific type of policy, but a way to use life insurance to offset a significant business risk.
How Does the Loss of a Key Employee Impact the Business
- Loss of management skill and experience.
- Disruption in sales or production.
- Missed business opportunities.
- Credit difficulties putting financial strain to make payments or securing needed credit.
- Increased expenses to hire and train a replacement.
The risks outlined above are why many successful businesses own life insurance on their key employees. The proceeds received are generally income tax-free and can help alleviate financial pressure, and aid in finding and attracting a replacement. The information is not intended to be legal or tax advice. Please consult your attorney, your CPA, or other professional advisor on the best way to proceed based on your specific circumstances and legal, tax or other requirements.
The best next step for individuals and organizations is to consult with an advisor to start the conversation and determine the strategy that uniquely meets their needs.
DISCLAIMER: This update is general in nature. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice, financial advice and/or the advice of a licensed insurance or certified human resource professional.
© SandStone Insurance Partners 2022