Key Man Life Insurance
How to Protect Your Company and Key Employees.
Key man life insurance is used by businesses to provide critical cash in the unfortunate event it loses one of its most valuable employees, executives, or owners to sudden and untimely death.
Key man life insurance is also called:
- Key person life insurance
- Key employee life insurance
In small businesses, the death of one high-performing person can devastate a company.
A key person life insurance policy provides immediate funds to help maintain the stability of the organization during the transitional time when it is impossible to conduct business as usual.
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KEY MAN LIFE INSURANCE FOR START-UPS
The start-up company, more than any other, relies on the abilities and skills of a select group of people. Based on past achievements, these business executives, salespeople, and scientists bring instant credibility to a new company. In many instances, the entire company’s success may depend on only one person.
These key people possess unique abilities to raise capital, have established key relationships with suppliers and vendors, hold rare technical expertise, or own an extraordinary track record of past sales. Whatever the specific case, a start-up company’s most valuable asset is likely its key employee(s) and their loss would likely mean the demise of the company.
KEY MAN LIFE INSURANCE FOR BUSINESS OWNERS
Small business owners have multiple needs for key man insurance, including:
- Providing income to the business to replace the skills and experience of one of the company owners
- Creating liquidity to buy out a deceased partner or shareholder’s family to avoid unintended extended-family partnerships. This is most often done in conjunction with a buy-sell agreement, which includes the instructions for what to do in the event of the death of a shareholder or business owner.
- Business succession planning and providing funds for the successful transition of the company when an owner retires. This is typically done using a key man life insurance policy with a cash value component, providing the liquidity needed to successfully transition the ownership of the company without a dramatic effect on its earnings ability and cash flow.
KEY MAN LIFE INSURANCE FOR NICHE BUSINESSES - NICHE PEOPLE
More than any other type of company, key man life insurance is crucial to niche businesses, hedge funds, research, and biomedical firms; companies with exclusive contracts, and businesses with patents or proprietary systems all rely heavily on the niche expertise of a key employee or business owner.
If one of these niche people dies unexpectedly, a key person life insurance policy can ensure the business will have the necessary funds to continue to operate until contingency plans can be implemented.
An immediate payment annuity is also known as a single-premium immediate annuity (SPIA), an income annuity, or simply an immediate annuity. We can provide an immediate annuity quote at your request.
KEY MAN LIFE INSURANCE FOR NON-PROFITS and CHURCHES
The most common non-profit organizations needing life insurance are churches and religious institutions. Churches routinely need to expand as their ministry and congregations grow, creating needs for additional classrooms, a gymnasium, or worship center.
To borrow the funds necessary, many banks will require a life insurance policy on the pastor of the church or their elders. It makes perfect sense as the growth of the church is, in large part, related to the vision of its pastor or minister.
TO FUND SALARY CONTINUATION ARRANGEMENTS TO A SURVIVING SPOUSE.
A Salary Continuation Plan is an agreement between an employee and employer, whereby the employer agrees to continue the employee’s salary upon death or disability. The benefits payable are typically a percentage of salary and length of service. Key person life insurance can provide funds to the company to honor prearranged salary continuation agreements in the event the key person dies.
Executive Compensation Planning
Retaining employees is crucial to the success of any business. As an incentive, companies routinely offer executive benefits to those most essential to their success. Life insurance with a cash value component can be a desirable benefit to any executive. The business can use non-qualified deferred compensation plans to tie them to the company. This concept is known as the “golden handcuffs.”
To read more about different types of life insurance, the Minnesota Department of Commerce website https://mn.gov/commerce/consumers/your-insurance/life-annuities/buying-life-insurance.jsp may be a good resource.