Speak with an experienced advisor! As a business owner, CEO or CFO, you know it’s simply not good business to fail to plan ahead. The real truth is that many small businesses or partnerships depend upon just one or two individuals for their ultimate success.
For most of these companies, the untimely death of one of these “key” people can result in the collapse of a business unless there are sufficient plans in place and funds available to keep the business afloat. Key man life insurance can protect a business from financial ruin if a key owner, executive, or employee unexpectedly passes away.
Here are five important uses of key man life insurance that every business should know.
The Top Five Uses of Key Man Life Insurance
Funding recruitment and training
Providing key man insurance for your essential employees and managers can cover the cash flow needs of your business, including short falls in revenue and increased expenses incurred during the recruiting and hiring process. The costs involved for recruitment and training are significant factors when finding the right fit to replace your company leaders and keep your business running.
Protecting Assets and Covering Debt
As a business owner, another use for key man life insurance is to cover your debts. If you have a mortgage on your business property, equipment, or have a line of credit or other debts, you have financial obligations to cover. Simply buying a key man term insurance policy ensures that the funds needed to pay off the bank or debtors are readily available if the unexpected happens.
Liquidity
Without ample cash flow, no businesses can continue to operate successfully. A key man insurance policy can provide your business with liquidity to make-up revenue shortfalls that may arise with the death of a key employee. The policy would afford the funds needed to maintain operations and to provide for the disposition of the company based on your objectives essentially protecting your company’s fair market value.
Business Succession- Spousal Buyouts
If there are multiple company owners and shareholders, key man insurance can be purchased on the lives of each owner for the intent of buying out the deceased owner’s spouse or estate. Buyout or Buy-sell life insurance is critical for small companies with significant assets that may not be liquid.
It protects company owners from unintentionally being in business with the partner’s spouse or family. It also offers a clean disposition of the estate for the survivors, and allows the surviving business owner to gain the equity position from the deceased member’s estate.
Executive Compensation Plans
Retaining and keeping key employees is critical. Providing them with an executive benefit package, including life insurance with cash value growth, or term insurance as supplemental benefit can be an appealing addition to a compensation package.
The policy can also be structured in a way that obligates or entices the employee to remain loyal to the company or corporation for a period of time before the benefits become vested commonly referred to as “golden handcuffs”.
Businesses depend on their owners, managers and key employees for continued growth and success. Any one of the five uses of key man life insurance can give you peace of mind that your business is protected in the event of the loss of a key person. Find out more about key man insurance and how it can safeguard your business’ financial future. You can also obtain an instant key person life insurance quote here.
