Key Person Life Insurance
The unexpected death of an owner, business partner, or key employee can have a devastating effect on a company. Replacing critical personnel could potentially cost significant time and money.
Potential Advantages of Key Person Life Insurance
- Provide an income tax-free death benefit to replace profits or capital loss.
- Provide an influx of cash to keep banks and other lenders from foreclosing on business loans, reducing lines of credit, or raising interest rates on outstanding loan balances.
- Can be used to fund an entity purchase buy-sell agreement (allowing the estate of an owner-key employee to convert the business interest into cash).
- Can be used to fund executive benefit programs for the owner and non-owner key employees.
- Income tax-free death benefits may be used to recruit, hire and train a successor key employee.
Key-person life insurance may also be used as the funding vehicle for other sales concepts. It can be used to fund both an entity purchase buy-sell arrangement and executive benefits designed to retain and motivate key employees. An example would be endorsement split-dollar plans, non-qualified deferred compensation plans, and/or death benefit only (DBO) plans.