Business Solutions

Executive Benefits » Key Person Insurance

 

Preserving the Life of Your Business
Key employees are the foundation of a successful business. They are business owners, sales directors, CFOs, or any other individuals who are sources of leadership and profitability, and who would be extremely difficult to replace.

ACS can provide strategies to help the business continue in the event of a key employee's death or disability. Funding a plan to protect key people may give the business the additional funds it needs to:

  • Hire and train replacements.
  • Replace an employee's contributions to profits.
  • Maintain the confidence of clients and creditors.


Funding Options
Option 1 - Cash or Sinking Fund

The business establishes a savings plan to protect itself from the death or disability of its key employees. Unfortunately, the drawbacks to this option are:

  • A savings plan accumulates funds over time, leaving the risk that funds may be needed immediately.
  • The business owner(s) will pay dollar for dollar, thus depleting the amount of cash that could be used elsewhere.

Option 2 - Borrowing Funds

Funds are borrowed, usually through a bank loan, to replace the financial loss. Drawbacks include:

  • A potential slowdown in business growth, or a reduction in future profits, due to additional loan repayments.
  • The business owner(s) will pay dollar for dollar plus interest.
  • The company's credit may be adversely affected due to greater debt.

Option 3 - Insurance: A Cost-Effective Alternative

Purchasing life and/or disability insurance on key employees can be a cost-effective way to safeguard the business and minimize the impact of a key employee's death or disability. The advantages include:

  • Funding with insurance is easy to administer
  • Funds are available even if death or disability occurs the day after coverage begins.
  • Although the premiums are not deductible, the life insurance proceeds at death are generally income tax-free to the business.


Funding the Plan
The business buys a life insurance policy on the life of the key employee, and is the owner and the beneficiary of the policy. The business pays the entire premium and will receive the entire death benefit. The executive does not have any interest in the policy, nor does his family receive any benefit from it when death occurs.

 

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