How does a business cope with the death of a principal employee, founder or owner? Frequently, it can deal a serious blow or even cause the closure of the enterprise.
How can a business plan for such an eventuality?
Often, the solution lies in a so-called "Key-Person" (or sometimes called "key-man") life insurance policy. The key-person policy is a life (or disability) policy the business takes out (as the beneficiary) to provide for compensation in the event of the loss of a critical member of the corporate staff. The key-person policy provides for a death (or disability) benefit to being paid to the business as a way to fund contingency or continuation plans in the event of the loss of the key employee.
Often, this policy is purchased with a so-called "first to die" provision which allows for multiple participants to be covered under one policy. This provision can sometimes reduce the cost of the policy for the business while still providing protection in the event of a loss. The typical "first to die" policy, as the name implies, covers the death of only one of the participants. In that event, the firm receives a payout and the remaining participants are no longer covered under the policy.
Key-person policies can be right for many different types of companies, but some, in particular, will realize greater benefit from such a policy. Among those most likely to benefit significantly are:
Those with young "key" employees: in many cases, younger key employees have not yet begun preparing for events such as death or disability. As a result, the business may pay the price for the natural tendency of younger employees to put off planning.
Professional services organizations and partnerships: small groups such as these often rely solely on the talents and abilities of their constituent members to stay in business. The death of a single partner can often result in the loss of clients and a key-person policy can help to mitigate these losses.
Those looking to grow in the future: if a business is planning on acquiring funding or in any other way working with outside financing, the provider of that external funding will often require a key-person policy to help ensure their interest in the business.
GFD has extensive expertise in developing and implementing business succession and continuity strategies – including those utilizing key-person policies.
GFD specializes in life insurance premium financing to develop succession or continuity plans that make financial sense and best prepares the business for unforeseen eventualities. For more information contact a Financial Services Manager today at 800-515-2599.