What could happen to my business
if I lost a key employee?
A key employee may be a specialist who has
knowledge that is critical to your organization (such as a programmer)
or he or she may be a generalist who has key contacts, is highly
efficient and/or drives production or sales. Regardless, losing
such a person could result in:
Can I protect my business against
the loss of a key employee?
- lost sales,
- unexpected termination or delay of important
- a loss of lines of credit,
- a slowdown in productivity, or
- increased business expenses.
One popular method for protecting your business
is life insurance. Your organization can buy coverage, often called
key employee or key man insurance. Such a policy can minimize
the potential for disaster since the following are among its benefits:
What if my insured key employee
lives until retirement?
- provides funds for recruiting and hiring
a replacement employee;
- creates a tax-free source of cash to help
offset lost profits; and,
- assures customers and creditors that business
will continue with as little disruption as possible.
While the key person works for you, the life
insurance can still be valuable. The cash value life insurance
How does Key Employee Insurance
- provide a reserve fund;
- reinforce your business' credit worthiness;
- strengthen your key employee's loyalty;
- (at retirement) be used to create or supplement
Remembering that you will definitely need the
help of your insurance agent and your attorney, it goes like this:
- a corporation purchases an insurance policy
on the key employee's life,
- the amount of coverage is typically based
on an estimate of the employee's value to the company,
- the business pays the premium and is the
owner of the policy,
- the company appears as the beneficiary,
collecting the benefit in a lump sum in the event that the key
Making arrangements with an insurance or benefits
professional and a lawyer is critical, since key employee insurance
has legal and tax implications.