Marketing Monthly | March 2017: Key Person / Bull Sell Insurance
In this issue:
- Key Person Insurance: Coverage for the Loss or Disability to a Key Employee
- Using insurance to fund a buy sell agreement is a smart business decision
- Key person insurance an overlooked opportunity
- Key person insurance: What is the right amount?
Key Person Insurance: Coverage for the Loss or Disability to a Key Employee
As its name suggests, key person insurance protects a business against the death or disability of a key executive or employee. The coverage may consist of a life policy, a disability policy, or both. Key person insurance may also be called key executive, key man, or key employee coverage.
Using insurance to fund a buy sell agreement is a smart business decision
Planning for the loss or disability of a business owner or partner with a buy sell agreement and insurance is crucial to ensuring the continuity of your business and protecting the financial interests of each co-owner’s family.
A buy sell agreement specifies what will happen to the interests of an owner, partner or shareholder who passes away or becomes disabled. If your company’s buy sell agreement requires that the other owners or partners must purchase the deceased/disabled owner’s interests, you can use life or disability insurance to fund the buy sell agreement rather than personal funds or business assets.
Key person insurance an overlook opportunity
Entrepreneurs are the lifeblood of the economy, creating businesses, jobs and economic activity from scratch through a combination of hard work and ingenuity. But too often the companies they start and the jobs they create are at risk of destruction, if the entrepreneur is not properly insured.
Key person insurance represents both potential sales growth for advisors and protection for companies with key executives who are vital to operations. Insurers do not underwrite key person insurance as a specific product, but frame the policy around a conventional life insurance or living benefit product.
Key person insurance: What is the right amount?
Key person insurance protection involves the use of life insurance to create immediate working capital for a business to meet immediate cash needs and find a replacement in the event of the death of a business owner or key executive.
The business owner and other key executives spend considerable time and effort in acquiring the knowledge, experience, judgment, reputation, relationships and skills that make them valuable to the business. The death of such an individual results in the loss of a key member of the management team and can have a severe financial impact. For example, during the resulting disruption, lenders may curtail credit, creditors may press for immediate payment, debtors may delay making payments, employees and customers may lose confidence, while providing competitors with an opportunity to take advantage of the situation. Life insurance provides the business with funds to meet these potential cash needs. A question we are frequently asked is “How much Key Person life insurance does my client need?”
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