Key Employee Indemnification

Posted on: August 19th, 2012 by Marty

While you’ve probably insured your business against the loss of buildings and equipment, what
about your company’s most valuable assets…your key employees?

Why Does Your Company Need a Key Employee Insurance Planning?

The talents and experience of key employees can account for much of the success of your business.
If a key employee were to die unexpectedly, your profits might suffer. You could also face the financial strain of recruiting, hiring and training a suitable replacement. How do you reward and retain key executives?

What Happens When a Key Employee Dies or Becomes Disabled?

Every successful business has one or more key people who are primarily responsible for the success of the business. When the business loses one of these key people, it may suffer a tangible financial loss arising from one or more of these causes:

  • Reduction in Earnings – Are significant portions of business sales or receipts attributable to
    a few key people?
  • Disruption of Management – Is business management concentrated in the hands of a select few key people?
  • Replacement Costs – How much would it cost to recruit, hire and train a replacement for a key employee?
  • Cash Flow – How do you pay a replacement and continue salary to a disabled employee?
  • Credit Problems – How will your creditors react to the loss of a key employee?
  • Confidence Problems – How will your customers, suppliers and other employees react to the loss of a key employee?

A Potential Solution Using Insurance Planning

Purchase life insurance on any key employees whose death would result in financial loss to your
business. The proceeds from key employee indemnification insurance can be used to:

  • Indemnify your business for the permanent loss of the key employee’s skills and experience.
  • Replace lost profits.
  • Locate, hire and train a replacement.
  • Provide a financial reserve during the adjustment period following the key employee’s death.
  • Fund the purchase of a deceased shareholder’s ownership interest in the business.
  • Create a plan to reward and retain using a Select Employee Retirement Supplement.
  • Provide benefits to the deceased employee’s family.