Momentum - Business to Business Online Magazine MOMENTUM April 2019 | Page 12

BUSINESS JAN LAMAN Harbour Insurance Services [email protected] How Key Person Life Insurance can Protect Your Business I f something were to happen to one of your key employees, what would happen to your business? Whether a key person leaves to work for someone else, is somehow unable to work or dies, the tumultuous impact on your business could be devastating. While you cannot prevent these events, there are some key things you can do to be as prepared as possible. One such option might involve the purchase of Key Person Life Insurance. Key Person Life Insurance is a policy that covers one or more of your key employees with the principal goal of protecting the value and on-going operations of your business. Well-crafted policies such as these can also help dissuade a key employee from leaving your company in the first place. How? The policy can be structured to act as a separate, non- qualified incentive plan providing even more value to the employer/ employee relationship beyond other traditional benefits you may already provide. So how do you go about identifying which key people in your business may merit such special treatment? Consider serious impacts such as a decline in profits, loss of credit rating or even the extraordinary cost of hiring a replacement with skills equal to or better than that key employee. The structure of these policy types is straightforward but, needs to be understood by all. The policy is first purchased by your business on the life of any key 10 MOMENTUM employee. The business is the premium payor, owner and beneficiary. As such, the business can use the cash any way you see fit and can use the death benefit proceeds in any way as well. There are several tax implications that must be correctly accounted for when establishing such a policy program and each is unique to each business. Be sure your life insurance agent works closely with your accountant to ensure the best structure is built for your specific situation. So finally, what happens if the key employee leaves, dies or retires? If the employee leaves, you can use the cash in the policy to fund the financial impact of that departure or, simply keep the policy as before and show the future death benefit as an asset for your business. If the employee dies, you can do anything you want with the death benefit proceeds. If the employee retires, you can surrender the policy to receive the cash value and give all, some or none to the employee. You could also give the policy to your key employee as a bonus. Providing a Key Person Life Insurance policy is a great first step in ensuring your company can weather the storm of employee volatility. Placing one on your number one key person (you), makes sure your succession plan can be built from a solid base. Truly, there are very few businesses that would not benefit from a properly structured policy such as this.