Protecting the most Valuable Asset 

Key Person Term Life Insurance is insurance to protect the business, family and estate from the economic costs associated with the loss of a business owner, partner, family member, spouse or key employees (i.e. sales manager, plant manager, chief financial officer).  Your business and family will incur financial losses upon your death, by purchasing inexpensive term life insurance you will strengthen the company’s cash position and this can be combined with the coverage to fund a buy/sell agreement.  Key Person term life insurance is important in many ways.

• Many times a bank will want an acceleration clause in the loan covenant that would require repayment of its outstanding credit line immediately should a key employee die or become disabled.  

• Permanent life insurance coverage has a lot going for it: potential tax-deferred growth inside the policy, tax-preferred access to policy values if needed to fund a non qualified retirement benefit, and income tax-free death benefit to the corporation.

• The life insurance cash value also can secure ongoing capitalization needs for the business. Banks and other creditors would be happy to see the cash value on the balance sheet because those values can be borrowed without loan underwriting if there’s a cash flow crunch. 

• If a key employee stays with the company for a long time, the policy could be used as a golden handcuff and be given to the employees as a retirement bonus.   We will address this in a future article.

• Additionally, if the employer has bonus some company stock to the key employee in the past the employer can buy it back by transferring the policy as partial payment for the company stock or use it’s cash value. 

When determining your Key Person Term Life Insurance needs, be sure to consider any costs, expenses or liabilities related to your business and how they will be handled.  By providing this protection you business will have funds available when creditors are due their full payment or to replace key employees.  We can advise you how much Term life insurance coverage you may need.  Purchasing Key Person Term Life Insurance is only one way to protecting your most valuable asset.

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