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
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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.