Term Life insurance can help retain key employees.
The purpose of key-person insurance is to indemnify a business firm for the
loss of earnings brought about by the death of a key officer or other employee.
Many business firms have been built around some one man or woman whose capital, energy, technical knowledge, experience, or power to plan and execute make him or her a most valuable asset of the organization and a necessity to its successful operation.
To Illustrate
A corporation or firm may be vitally interested in one of its officers whose
financial worth, or ability as an executive, may be the basis of its general credit rating.
A manufacturer may be dependent upon someone who alone possesses the chemical or engineering knowledge necessary to the concern.
A publishing house may have engaged someone who alone can be the author of
a proposed work and may be obliged to incur considerable outlay before it is written.
The sales manager of a large business establishment may have made him- self
or herself indispensable through his or her ability to organize an efficient body of sales people, to employ the most effective methods of selling, and to develop profitable markets.
Some officer of the concern, although not actively engaged in its daily operations, may prove indispensable because he or she is its principal owner and because
his or her experience and business connections make that person its chief advisor.
These are only a few illustrations to show the importance of a human value as an asset to
the operation of a business.
The loss of valuable lives to a business can be a more serious loss than a fire or any of the other sources of loss in business.
If the key person is insured for the benefit of the business, the firm would immediately upon the death of the key person, receive the face value amount of the policy.
The insurance proceeds would help meet any obligations the business has during the period
of adjustment and maintain the confidence of creditors.
Making the business the beneficiary of a properly funded policy on the lives of the officers or other key employees will guard against these losses.
It is difficult to determine the economic loss that would be suffered by the business in the event of the loss of a key person. Estimating the loss of a key person may be approached
in terms of lost earnings, or measured by the additional compensation necessary to secure
an experienced replacement. Consideration should be given to whether the loss is a temporary or a permanent one.
The Mechanics
The insurance is taken out on the life of the key person, paid for by the business, and made payable to the business as beneficiary.
Some form of low-premium permanent life insurance is taken out, and the accumulating cash value becomes an asset on the balance sheet of the corporation.
Temporary needs in this regard should be secured by a temporary life insurance policy, namely term insurance.
Note: The intent of this article furnished by termlifeamerica.com is to inform and motivate the general business public into action. One should consider only a qualified practicing legal individual or entity; in the state in which you reside for qualified business-planning advice.
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