Unlocking the Benefits of Key Person Coverage
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Article originally appeared here.
Even before the pandemic, remote and online methods of education and training had begun to make huge strides and increase in popularity. It came as no surprise that 2020 caused the adoption of online learning platforms and materials to skyrocket as the pandemic halted a majority of in-person activities.
As a business owner, you know your employees are an important asset of your business. Each business has individuals with specialized skills, knowledge, and valuable customer relationships who are critical to its success. If your business relies heavily on key employees, it may suffer tremendously without those individuals.
Key employees are critical to the operation, profitability, and continued success of your business. Characteristics of key employees may include the following:
- Decision making skills
- Important and unique responsibilities
- Leadership ability
- Technical expertise
- Higher salary
- Exceptional work ethic
- Contribution to profitability
- Goodwill with customers
What does the impact of losing a key employee look like? First, you may have to take on additional duties that could change your lifestyle and how the business operates on a daily basis. Plus, the loss of a key employee can also result in:
- Decreased sales and profits
- Costs to recruit, hire, and train a replacement
- Loss of customers
- Loss of confidence of creditors and suppliers
- Reduced employee morale
- Loss of confidence of creditors and suppliers
- Damaged or weakened relationships
- Costly mistakes due to inexperience
To help avoid the potential business impact of this type of loss, consider utilizing key person life insurance. Key person coverage can help protect against the untimely death of a key employee (or owner) by providing your business with cash at a time it is needed most.
Your business owns, pays the premium for, and is the beneficiary of a life insurance policy on the key person. The death benefit is paid to your business at the time of the key employee’s death. The death benefit is generally received income-tax free. Because of its liquidity, the proceeds can be used to help recruit and train a replacement, provide survivors time to make business continuation decisions, and replace lost profits.
A permanent policy on the life of a key employee can also benefit the business during the insured’s lifetime. The cash value of the policy is considered an asset, which may help strengthen your balance sheet. Additionally, the cash value can be accessed via a withdrawal or loan, if needed, to meet business expenses.
Take advantage of the risk management resources that Federated Life® has to offer and ask your representative about our key person coverage.
This article is for general information and risk prevention only and should not be considered another other offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.
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