Failing to plan ahead, after a substantial investment and years of hard work to build a solid foundation, is simply not good business sense. Everything could be lost if a company makes the single mistake of failing to purchase key man insurance to protect their company in the event of death or disability of a key person.

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The Uses for Key Person Insurance

Key person insurance is primarily used for:

1. Funding the recruitment and training efforts to replace key employees.

2. Settling any loans due or other expenses or bills as the company transitions.

3. Boosting the credit position of the company.

4. Securing loans to help the business grow and expand.

5. Transitioning company ownership to its' successors.

6. Purchasing stock from the estate of the deceased owner.

7. Offering salary continuation arrangements to the spouse of the deceased.

8. Funding executive compensation plans.

The Advantages of Key Person Insurance

Key person insurance presents multiple advantages to businesses both large and small. A few of these benefits are:

• Peace of mind. Business owners, investors, and creditors can all rest assured that the business is protected.


• Affordability. Key man life and key man disability insurance are both very affordable. Additionally, inexpensive term insurance can be used to fund key person life insurance.
  


• Choice. Companies can decide for themselves which employees need to be insured.


• Accessibility. Key person insurance policies are simple to obtain, with no special filings or IRS disclosures required.
  


• No tax. In most cases, funds from keyman life and disability policies are received by the company tax free.
  


• Compensation funds. Universal life insurance can be used by the business to fund compensation plans for key executives. Such long-term policies build equity that is accessible for use when needed by the company.
  

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Key Person Life Insurance Helps Retain Employees

In addition to securing a company against the devasting effects of the loss of a key person due to death or disability, key man insurance can actually help a business to retain key employees. Generally, small to medium size companies employ highly valuable key people that generate a large portion of the annual revenue. To avoid losing such employees to competitors, companies can provide key man insurance as an employee benefit while also protecting the business by linking benefits with continued service. It is in everyone's best interest to secure key man life insurance for both the business and the employee. Options can include executive benefit plans as well as nonqualified deferred compensation arrangements.

Key Man Insurance is Simple Protection

Insuring key employees is an easy way for businesses to avoid major diaster. Large corporations and small businesses alike can rest assured that the loss of a key employee or business owner will not lead to the company's demise. Key man insurance is a low-cost method of insuring that the company can retain its' options in the event of a death or disability of a key owner or employee. Options such as recruiting and training capable employee replacements, handling debt and liquidation of the company, or even successfully selling the company are all within reach when a business is covered by key man insurance. When key man insurance has not been secured for a business, a key executive's death or disability often results in the closing of operations or a sale at a less than fair market value price. The low cost and ease of securing a key person insurance policy make this very important business decision a simple one.
For more on this, refer to What is Key Man Insurance? or Does My Business Need Key Man Insurance?