Your business clients know the importance of protecting their businesses from risks like damage of property, personal injury of employees and other liabilities they cover with insurance. But they often fail to insure one of the most valuable assets they have – their key employees. Those employees that, if gone tomorrow, will cause loss of revenue to the business.
Who are the key employees? They may be:
- The business owner themselves
- Top sales people
- Key executives or corporate officers
- Hard to replace specialists such as engineers or scientists
- Top managers
Having term life insurance can be a cost-effective way to provide funding to help the company recover from the loss of a key person. However, it may not be the best choice. Let’s look at a small business that was founded 10 years ago by Bob. It has grown from its original staff of 4 to over 40 employees today. Janet has been the leader in several initiatives that have been key in the growth of the company. Not only has Janet shown her ability to get their new offices running smoothly, but she is also responsible for maintaining the training programs throughout the company.
Knowing that Janet is vital to the company, he is concerned about how the company would survive without her. Bob speaks to his insurance advisor about his concerns and they decide to protect the company with a life insurance policy.
Bob and his advisor discuss Janet’s role in the company considering her income and the cost the company would have at her loss and determine $750,000 would be appropriate. Bob’s advisor shows him a 20-year level premium term plan to easily and inexpensively cover the loss but goes on to say that there is no advantage to the term coverage. He then explains how Bob could utilize an Index Universal Life plan in this same situation which has many advantages over the term life insurance. Bob decides on the Index Universal Life and here is why:
Janet gets in an auto accident
Janet is working hard to open the company’s newest location when the unexpected happens and Janet is killed in an auto accident. The new location’s opening is pushed back several months and the process of hiring someone to replace Janet is time consuming and costly. Bob uses the death benefit proceeds from the IUL policy to help offset the costs of Janet’s death.
Janet decides to leave the company
Janet’s husband has decided to accept a new position that will require Janet to relocate and Bob will lose his best employee. Janet’s skills are special, and the company will lose money every day she or someone like her is not there. Bob decides to use an employment service to help search for her replacement. To help cover these costs Bob cashes in the policy.
Bob provides an incentive for Janet
To give Janet more incentive to stay with the company for the long-term, Bob tells her he is setting up a bonus program through which he’ll be funding a life insurance policy with significant cash value growth potential. The policy will act as a non-qualified deferred compensation plan, so at retirement, the company can take withdraws and loans from the policy’s cash value for Janet to use for retirement planning and other needs.
Janet becomes disabled
Janet suffers an unexpected stroke and suddenly cannot perform 2 of the 6 ADLs and is not expected to recover. Opting not to purchase a disability policy but adding a Chronic Illness rider to the life insurance policy will give Bob an income over time to help offset for the loss of Janet being able to perform her normal duties.
Bob keeps the cash at Janet’s retirement
Janet decides it is time for her to retire. She has done well with her retirement plan and Bob has contributed to the plan above and beyond when times were extremely good. When Janet retires he decides to surrender the key person policy for its cash value essentially having had no cost life insurance on Janet, with a bit of a profit!!
There are other great reasons to use IUL for Key Person life insurance plans. All of the above can be customized for your client’s specific business needs and objectives, plus we can help make the process easy on you. To learn more simply give me a call at 800.747.4445 or email me. Your business clients need to protect their most valuable assets, their key people.