Most organizations employ at least one individual who is essential to the company’s success. This person may be a partner, a majority stockholder, or an individual with expertise that is unmatched throughout the rest of the company.
If this person’s exit from the company is planned, such as retirement or voluntary termination, then you can prepare for the loss and take the necessary precautions to minimize the impact. However, if the departure is unplanned due to a death, disabling accident, or on-the-spot resignation, then the company is exposed to financial risks.
Consider key person life insurance to offset your risk. This insurance solution can protect your organization’s solvency in the event that you lose the key person or people without warning, and also the investments made by lenders and investors to the company.
How Does Key Person Life Insurance Work?
- Employer purchases life insurance on the key individual(s)
- Employer is the beneficiary of the life insurance policy and applies for and owns the policy. If the key employee dies prematurely, the policy pays out to the employer
- Tax-free dollars from the policy can be put toward finding, hiring, and training a replacement employee, compensation for lost business during the transition and/or financing timely business transactions
- Policy can be transferred to a different key employee as a retirement benefit or to a different key individual, upon the retirement of the original key employee
- It can be used to buy out the key employee’s shares or interest in the company
- Premiums are based on several factors, including the key employee’s age, physical conditions, and health history. The amount of coverage also affects the premium.
Advantages of Key Person Life Insurance
- Can be easily implemented and does not require Canada Revenue Agency (CRA) approval; only requires an annual report to the CRA
- Life insurance benefits are paid to the company tax-free
- Customers, creditors, lenders, and stockholders have the assurance that the business has a continuation plan and coverage in place
- There is flexibility in what the funds can be used for.
Scrivens Insurance and Investment Solutions understands that your key assets need protecting and we are here to help! Please contact us today to learn more about key person life insurance solutions.