Key person life insurance can help business owners
Business owners recognize the benefit of insuring their firm’s valuable assets, such as office equipment and inventory, to cover property loss. Such assets, however, may not be as valuable as key persons.
Consider a top salesperson who is unsurpassed at bringing in new business or an expert manager who handles the day–to–day operation of the business. Key persons are a business's most valuable resource. Their energy, expertise and hard work enable the business to be successful in today's highly competitive marketplace. If a key person dies suddenly, profits could be impacted and there might be considerable costs incurred in recruiting, hiring and training a suitable replacement.
Life insurance should be part of a business continuity strategy. It can provide the business with tax-free funds when needed to help:
- Find and train a new person to assume the key person's role.
- Assure customers that the business will continue as a viable entity.
- Assure creditors that the funds will be available to meet commitments.
- Offset expected reductions in sales revenue (after-tax).
- Pay a death benefit in recognition of the deceased employee's service to the surviving spouse, other family members or the estate.
A key person is anyone associated with the business whose special skills make a major contribution to the bottom line. Some examples include the active business owner(s), employees who have a strong relationship with valued customers, and any employee who has specialized knowledge and expertise that can't easily be replaced.