Key Person Insurance & Executive Bonus Plans
Key person insurance plays a huge role in succession planning & business survival
If the reputation and financial viability of your business are critically linked to a key employee’s name, reputation, or skills, and the death of that employee would have a devastating effect on the business.
If the death of a top salesperson or other key employee could threaten the company financially.
In a partnership in which each partner wants to buy out the shares of the other partner in the event that he or she dies unexpectedly.
To provide business loan collateral for a financial institution or creditor that requires the option of a lien on a key person policy
Offer Executive business plans to retain key people in your business
Provide incentives to reward and retain key Administrators
Provide beneﬁts in case you die too soon, live too long or become ill
Help contribute towards a secure retirement
Bonused dollars are tax-deductible to the company as compensation
Simple to implement: no IRS approval required
WHAT IS KEYMAN Insurance?
Any business, large or small, may need key person (key man) insurance. If you are starting with a small business, your focus is likely to be on pressing matters, such as getting your product or service out, hiring the right people, managing your expenses, and paying the bills. Buying key person insurance may not be the most urgent item on your agenda, but it can help save your company from bankruptcy if you face certain tragic situations.
Regardless of your company’s size, you may need key person insurance if the success of your business depends on a few key people. Your company may need key person coverage on its founders, owners, individual key employees, or any person who is crucial to the success of the business. Banks and Small Business Administration lenders may require key person insurance as a condition for a loan. This coverage may also be required for mergers and other transactions.
If you or any other person is irreplaceable to your company in the short term, key person insurance may be a wise choice. This type of policy should be purchased on any person whose knowledge, skills, or connections are so necessary that their absence would have a significant effect on or even sink the business. Key person insurance may be essential to protect the future of your company, whether it is small, medium, or large.
Key person insurance is not to be confused with personal life insurance. It does not pay out benefits to the family of the deceased. The company buys a life insurance policy on a key person. The company is the policyholder and the beneficiary in case of the death or disability of the key person. This insurance is designed to help the business survive the loss of a key person who is essential to its success until a replacement can be found to take over those duties. If necessary, the proceeds can be used to settle debts, pay employee severance, and distribute money to investors. It provides an alternative to bankruptcy after the crushing loss of a key person.
The amount of key person insurance you need will depend on the type and size of your business and how crucial the key person is to its success. As a general rule, you should shop around for the best available rates and buy as much key man insurance as your company can afford. Term life insurance is available at lower premiums than whole or variable life insurance, which makes it a good choice for a key man policy.
WHY OFFER EXECUTIVE BONUS TO THE KEY PEOPLE?
An Executive Bonus Plan helps you stand apart from the competition by providing meaningful benefits to you and your employees. Have a tax-advantaged strategy by offering an ‘Executive Bonus Plan’ that allows you to reward yourself and your key employees, help contribute towards a secure retirement & provide benefits in case you die too soon, live too long or become ill.
Benefits to Business:
• Flexible contributions and multiple designs are available
• May select among employees and may include business owner employee as a participant
• Bonused dollars are tax-deductible to the company as compensation
• Simple to implement: no IRS approval required
• Provide incentives to reward and retain key employees
Benefits to Business Owner and Key Employees:
• Receive a valuable benefit
• Participant owns the life insurance policy and selects their beneficiary
• Potential for retirement income through tax-free loans and withdrawals
• Accelerated benefit riders offer access to the death benefit in the event of a qualifying terminal, chronic, critical illness or critical injury
• Determine the amount and time of distribution
• Cost for this program may be less than other types of arrangements
• Heirs may receive an income tax-free death benefit
• You may be able to pay income tax that is due on the bonus using loans and withdrawals from the policy
Only you know what is in the best interest of your company, and only a qualified insurance agent can help you choose the route that best protects those interests. Our agency is dedicated to looking to the future to protect what you’ve built. As a key player in your business, you take responsibility for its day-to-day operations. Take this step to take responsibility for its future. We are ready to sit down with you and explore your options, so call us and speak to one of our agents about scheduling a consultation today.