KEY MAN INSURANCE
Every business has some key individuals who are important to the company’s success. They could be the Founder, a successful salesperson, or the head of operations. As businesses grow, the number of people critical to ongoing success increases.
The loss of key people is a great vulnerability that can wake up senior leadership at 4:00 AM. To address this vulnerability, first ensure that key personnel are satisfied employees. If there are points of discontent, address them within reasonable bounds. But, don’t be held hostage.
Second, for key people who are on the verge of retirement, make sure their legacy is retained in the firm. Figure out how to codify their unique knowledge.
Third and most importantly, protect the firm. Doug McClure, CEO of Global Investment Strategies, took this complex issue and streamlined it to a simple clear solution. Doug said:
“Investigate Key Man Insurance policies on the critical personnel who would have profound and lasting negative impacts on the firm if they left or retired. Think about it. A business insures the trucks, buildings, equipment, etc. needed to keep the company going. If people are truly the most important asset a company has, then it only makes sense to insure the key people in that asset pool. Doing otherwise is fiduciarily irresponsible.”
The Three Types of Buy / Sell Insurance:
This type of corporate owned life insurance is purchased to insure the company against the loss of a key employee.
(Supplemental Retirement Planning). Retirement Plans (SERPs) provide an attractive opportunity for rewarding valuable executives who need additional retirement income.
Double and Single Bonus Compensation
These plans are designed to provide additional compensation to selective key personnel.
Death Benefit Only Plan
In a Death Benefit Only plan, an employer promises to provide a benefit to a participant’s designated beneficiary in the event of the participant’s death.
Death Benefit Only Plan
In a Death Benefit Only plan, an employer promises to provide a benefit to a participant’s designated beneficiary in the event of the participant’s death. The Plan designates the corporation as the beneficiary of the policy with a secondary employee agreement providing the Deceased employee’s family with a funded death benefit. This eliminates the need for the employee to fund a policy with after tax dollars.
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