Guest editorial
Scott Carver
Advisor at JD Fulwiler & Co. Insurance
Most businesses have at least one key employee who is integral to their success. This individual typically has specialized skills, expertise, knowledge or valuable customer relationships. If your business relies on a key employee, your operation would likely be negatively impacted by the loss of that individual. Have you ever considered how much time or money it would cost to replace such knowledge or expertise if a key employee unexpectedly leaves your organization?
If your company employs an individual essential to your success, your business can protect itself with a key person life insurance policy. Key person insurance is a simple and efficient way to provide your business with the necessary funds to deal with the loss of a key employee and to recruit and train a replacement.
The nuts and bolts of a key person life insurance policy are fairly simple. The business pays the premium and is the policy owner and beneficiary of the policy insuring the key employee. In the event of the death of the key employee, the business generally receives the death benefit proceeds income-tax free. These funds can be used to recruit, hire and train a replacement employee, or to offset lost revenue during the transition. Premiums are based on several factors, including the key employee’s age, gender, tobacco use, physical condition, health history and amount of coverage. Businesses would purchase a separate policy for each key employee.
Either a low-cost term policy or a permanent life insurance policy can be used. If a permanent life insurance policy is used, the policy cash value would appear as an asset on the business’s balance sheet. Additionally, the policy cash value can be used in the event of a financial emergency or another business need.
You should consider the following when determining if your business has key employees:
- Technical expertise and experience
- Unique skills or training
- Reputation and leadership ability
- Decision-making responsibilities
- Exclusive ties to customers and suppliers
- Business development and client relationships
Employees with these traits are typically extremely time-consuming, difficult and expensive to replace. Key person insurance can provide much-needed funds and liquidity to help the business function in the event of a key employee’s death. Your insurance advisor can assist you in determining the need for key person life insurance and putting the right amount of coverage in place for a key employee.
JD Fulwiler & Co. Insurance developed the Work Truck Total Protect program to provide the industry with underwriting, risk assessment and loss prevention services. JD Fulwiler will shop among many top insurance carriers with which it does business to find a coverage solution that best meets your needs. Learn more at ntea.com/partnerships.