Do you have key employees in your business?   How big of a hardship to the business would it be to lose that employee?  What type of financial loss would there be and what type of fall off in production would there be?  Would you have the money and resources to hire someone else from the outside that might be able to stop the proverbial bleeding?

These are all important questions we ask business owners when we meet with them.   Good people are what make a great business and it is important to consider what the ramifications would be in losing such a person.   Would a windfall of money be helpful with such a loss and transition?  The answer would obviously be yes to this question.  Basically, this type of policy is taken out on a key employees term life insurance and if anything happens the death benefit goes to the company.  This gives the company money to deal with the loss of the individual and money to make an effective transition.    The biggest challenge to overcome with business owners often times is that they understate how much a loss would effect them.   How will it effect your bottom line and how will it effect other employees?

Usually for a small sum of money, this liability can be covered pretty easily.   If this is a valuable employee, you can consider turning over the ownership of the policy to them at some point.   Maybe it is some type of incentive for staying on for a period of time.  There is no limit of how many employees you can have a key man policy on.   Some business may have one or two key people and others may have 5 or 10.   This is a great application of life insurance and if you have a business, something to really consider.

A lot of our clients will by life insurance based upon a single need.  For example, they might want it to serve as mortgage protection for their primary mortgage.  We worked with a client the other day who had a mortgage for 275,000 and wanted to have that paid off so her family would have the house free and clear with no payment.

Other single needs that we see clients by life insurance for:

Income replacement- replacing all or part of their income for their family.

Final expenses- To cover all of the immediate needs of the burial.

College education- Insurance to pay for the childrens education

Mortgage protection- To pay off the existing mortgage (s) so the family is not buried in debt

Tax Favorable Accumulation- The use of the cash value for tax favorable accumulation

Business loan- When a client is applying for a business loan and the bank requires life insurance in the amount of the loan

Buy-Sell- Life insurance on partners in a business that will buy out a partner due to their untimely death

Key Man life insurance- Taking out a life insurance policy on a key person in the business to help replace the value of  that person to the business.

There are other single needs that people will buy insurance for.  We try to have our clients avoid focusing on a single need and look at their overall picture and needs.  With that being said, life insurance is a very effective way to cover a single need and create leverage.

Do you own your own business? Do you have employees that are invaluable to the success of your company?

If you do, you may want to consider key man life insurance. Key man is basically taking out a policy that the company owns on a key employee’s life. The company is responsible to pay for the premium as they are the beneficiary. To establish the face amount of the policy, the company and their agent determine what they consider the value of that employee to the business. If something were to happen to this employee, the company would receive a death benefit that would help cover the financial loss to the business.

Key man is not limited to the CEO and the President, as it can be anyone who is valuable to the business and its success. Often times the business will use cash value life insurance to cover the life of the key employee (s). They can use the cash value to loan money to the business along the way. On top of that, they can give the policy at some point to that key employee as an extra perk. Some company’s will simply use term life as it is cheaper and for a period specific. It can also allow a company the ability to purchase even more death benefit with mortality rates at an all time low.

If your business would suffer with the loss of an important employee, you may want to take a look at key man life insurance