What would happen to your business if you or a key employee were no longer there?  If a key employee leaves or is unable to work, the operations of your business would surely suffer.  While you can’t prevent some situations from occurring, you can plan ahead.

Key Person Life Insurance

Protect the value and operations of your business with a life insurance policy that covers one or more of your key employees.  Key person life insurance can keep your business going by providing a death benefit or accumulated cash value that the business can access in case of an emergency.

Who is a Key Person

A key person is an employee without whom your business would suffer an economic hardship.  Adverse effects of losing this key employee may include a decline in profits, the expense of finding a suitable replacement, or a loss of credit standing.

You, the business owner, are a key employee.  All benefits from a key person life insurance policy can be applied to you.

How it Works

Your business purchases a fixed index universal life insurance policy on the key employee.  The business pays the premiums and is the beneficiary in the event of the employee’s death.  As the owner, the business may choose to surrender the policy, borrow against it, or use the available cash value or death benefit as needed.

How Much is Enough

How much is your key employee worth? It’s very difficult to determine.  Here are some guidelines that may help:

• Replacement Value: Coverage could equal the amount needed to recruit and train a suitable replacement.
• Business Life Value: Coverage could equal the loss of annual earnings multiplied by the number of years the employee would have worked until retirement.
• Multiple of Salary:  Coverage could equal the employee’s annual salary, times the number of years a newly hired replacement might take to reach a similar skill level.
• Contribution to Profits: Coverage could equal the amount of income lost due to the loss of the key employee.

If the Employee Leaves or Retires

Should the employee decide to find employment elsewhere or reaches retirement the business has some options regarding the key employee life insurance policy:

• The business can continue to maintain the policy, paying premiums and receiving the death benefit upon the death of the employee.
• The business can offer the policy to the employee as a bonus at its current cash value, making the employee the owner and beneficiary of the policy.
• The business can surrender the policy for the cash surrender value.