Key Person Insurance

When speaking to business owners regarding the success of their company, many agree that it is the “key employees that make the company successful.” I often ask them, “What would happen to the growth or existence of your company if something drastic were to happen to that key employee?” Most admit that it would have a devastating effect both on the financial and daily operation of the company.

To rehire an employee with the strengths, skills, knowledge or experience to replace the “key employee” can take time and money, two factors that can have a large impact on the success or failure of a business.

At this point, I encourage the implementation of “key person insurance” to help preserve the value and continuation of the business in the event that a death occurs to a key employee or owner.

Key person insurance can assist heirs in meeting estate tax obligations without the death of a “key person” having a negative impact on the business. Creditors and customers knowing you have the right coverage will be can reassured that it is “business as usual” and there is no financial impact due to the loss of the individual.

In addition, key person insurance allows for the expenses of training a new suitable replacement.

The Specifics:

The employer will be the owner and beneficiary of the policy and the key person will be the life insured. There would be no benefit paid out to the life insured. Under the Income Tax Act, there are no tax deduction provisions and the proceeds are received tax-free allowing for time to rehire and train, thus resulting in minimal financial impact.

If you are not yet sure if key person insurance would benefit your situation, I welcome a brief meeting to discuss it in greater detail.