Business owners are quick to insure their business against the loss of property, but the asset you should be protecting might be your valuable employees.
A key employee is anyone whose special skills make a major contribution to the bottom line. Examples include the active business owner, employees who have strong relationships with valued customers, and any employee who has specialized knowledge who cannot be easily replaced.
Insurance cannot, of course, replace the abilities of the key person, but life insurance and critical illness insurance can provide the business with tax-free funds to:
- Keep the business running
- Offset expected reductions in sales revenue (after-tax)
- Find and train a new person to assume the deceased’s role
- Pay down business debt
The business can also use the proceeds to provide a $10,000 tax-free death benefit to the surviving spouse of the employee. ¹