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Life Insurance

Key Man Insurance

Key person life insurance can help ensure that your business continues to be successful, even if you lose their expertise. 

The advantages of this strategy: 

  • Life insurance lets you reduce, or even eliminate, some of the risk your business may face following the death of a key employee. 
  • The costs, expenses, and potential loss of revenue resulting from the death of a key employee are no longer unexpected or unmanageable. 
  • Funds are available to hire and train a new employee. 
  •  The plan is completely selective – cover only those employees you feel are most important to the ongoing success of your business. 
  • Life insurance benefits are received income tax-free by the business. 

Key person life insurance can provide the protection your business needs to keep going. 

Here’s how it works: 

You and your life insurance professional determine the financial impact the loss of a key employee will have on your business. 

Your company buys, owns, pays the premiums on, and is the beneficiary of a life insurance policy covering the key employee’s life. 

At the death of the key employee, the life insurance policy pays your company an income tax-free benefit. 

Reward and Retain Key Employees 

A Split-Dollar Agreement can help you reward and retain certain key employees privately and selectively. 

This strategy provides the following: 

  • Allows your business to provide selective benefits to key employees. 
  • Business retains ownership of cash values. 
  • Key employee receives valuable life insurance protection. 

A Split-Dollar Life Insurance agreement can help keep them committed to your company. 

Here’s how it works 

Business owner determines who will be covered under the plan. 

Permanent life insurance policies are purchased on selected key employees. 

Business enters into split-dollar agreements with selected employees. 

Business pays the premiums and controls the cash values. 

The value of the insurance protection is included in the employee’s gross income. 

Employee designates beneficiary of death benefits. 

At an employee’s retirement, business may surrender the policy and keep the proceeds or use the policy for the benefit of the employee. 

At death of the insured, the employee’s share of the death benefit is paid to designated beneficiaries income tax-free; the employer’s share of the death benefit is received by the business income tax-free. 

Buy Sell Agreements

What will happen to your business if you or a business partner dies or becomes disabled? 

What will happen to your family if you are no longer able to work in your business due to a disability or premature death – will they still be able to benefit from cash flow from your business? 

Many businesses are not prepared to survive following one of these potential events. Many families are not adequately protected. A business succession strategy using a properly structured buy-sell agreement can help you protect your family and the business you have worked so hard to create. 

Eliminate potential problems or issues before they arise 

A buy-sell agreement may: 

  • Provide liquidity for your family 
  • Create a guaranteed market for your business interest 
  • Allow those who are interested in continuing your business to do so without interference 
  • Set the purchase price and terms of payment in advance 
  • Establish the value of your business for federal tax purposes 
  • Specify how the transfer will be funded 
  • Improve access to credit 
  • Provide greater retirement security 

Common types of buy-sell agreements: 

In an Entity buy out the business purchases the business interest from the selling owner. 

Using a Cross Purchase buy out, the co-owners purchase the business interest from the selling owner. 

Wait and See combines at least two options. The first is for the business to purchase the business interest. If the business doesn’t or can’t make the purchase, the co-owners will then have the purchase option.