KEY PERSON INSURANCE: KEEPING YOUR BUSINESS IN BUSINESS

4Every company has one or more "key employees" (whether it's an outstanding manager, a superstar salesperson, or a technological whiz) whose contributions are essential to the business. If one of these key people were to die, the impact on your operations could be devastating -- perhaps even fatal.

Key Person insurance can provide financial peace of mind by protecting your business against this potentially deadly risk. Here's how it works: The business takes out a Term Life policy on the essential employee(s) and pays the premiums (as a non-deductible business expense) with itself as the beneficiary. If the insured dies, you can use the death benefit to keep your business in operation by:

  • Covering the expense of finding, hiring, and training a replacement.
  • Reimbursing you for the loss of sales and/or potential future earnings due to the death of the employee.
  • Maintaining the credit-worthiness of the business.

If a key employee's death means that the company won't be able to remain in business, the policy proceeds will help pay off investors, reimburse creditors, provide severance pay, and wind down the operation without going through bankruptcy.

As long as the key person remains with the business, you can withdraw the cash value of the policy or borrow against it -- a potentially valuable option.

When the employee retires, you can transfer ownership of the policy to him or her as a bonus.

Although you know who to insure, the amount of coverage to buy depends on your estimate of how much it would take to keep your business up and running after the death of a key employee. Our business insurance professionals would be happy to review your situation and recommend Key Person coverage that's tailored to the needs of the business. Just give us a call.

P.S. To help protect your business against financial loss if an essential employee is incapacitated, you might also consider Key Person Disability insurance.

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