Key Person Insurance

According to The Family Firm Institute (2006), the majority of small businesses never make it to their 10th birthday, and only 30% survive into a second generation. Successful businesses are built on a variety of assets: equipment, inventory, real estate, accounts receivable, cash, goodwill, and not least of all, key people. In light of the many challenges faced by small businesses in a competitive market, business owners depend on attracting and retaining key employees.

While owners are the most valuable key assets of a business, key people contribute significantly to its success. The loss of a key person would result in tangible loss to the business because key people have the following characteristics:

• High salary level
• Decision-making power
• Vision to plan the direction of the business
• Ability to implement plans
• Financial leverage representing a source of business capital
• Special or unique talents

 To attract and retain key employees, the business owner must choose the right financial solution that answers the following questions:

• How can you reward faithful service by employees?
• What can you do to attract and retain high quality employees?
• What tax-deductible benefits can you offer that result in little or no current tax to your key employees?
• How can you provide extra benefits to those key employees who make your business profitable?

The business owner can choose from a variety of business strategies to answer key employee questions and to meet specific needs and objectives within the context of business continuation and risk management. The following are examples of strategies available:

• Selective executive retirement plans
• Tax-qualified retirement plans
• Executive bonus plans
• Split dollar insurance plans