Business Planning - Key Person Insurance: Does your business need Key Person Insurance?
Do you have a key employee? Such an employee may also be the owner of the business, but generally speaking a key employee is on who has specialize abilities that are critical to the operation of the business and difficult or expensive to replace. This could be almost any specialized ability from technical to your key salesman that brings in most of the business.
Then yes you do. A specialized skill set may be difficult as well as expensive to replace at any time and the cost of recruiting specialized abilities can be expensive in cost and time. What if this individual is your key salesman bringing in 40% of sales what is the cost of his loss? Can the company survive while you seek a replacement or replacements?
Each of the scenarios tends to happen at the very worst time, financially. The key employ insurance has been paid by the company and the death benefit is paid directly to the business. The funds are treated as an addition to surplus and may be received free of any direct income tax. Is this an employee you would like to keep?
Key person insurance can be designed as part of an employee agreement sometimes known as a golden parachute. Maintaining insurance on the key person and using a growing portion to take care of the individual’s family and/or using the cash value to fund a bonus over a certain period of employment can go a long way in keeping a key employee from being enticed away.
One use of key person insurance: Policy cash values are carried as a business asset, and are available as collateral for obtain commercial loans, or for borrowing directly from the insurance company. Depending on policy, cash value may not be reduced and continue to accrue full interest during time of loan. There is no tax on the loan and interest may be fully deductible.
Once the policy is no longer required, the policy may be sold to the employee or surrendered for value in access of premiums paid during the life of the policy.
As a business owner, wouldn’t a conversation concerning disposition of your business in the event of death or an exit strategy in the event of disability or the desire to retire make sense? Today is the best time to have this conversation please call Hubert McMinn at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. for a confidential and informative conversation . “Do it today”!
For a free consultation and information concerning your situation: PLANNED ASSETS - POINT...INVEST...WIN!
