Life Insurance as a Business Planning Tool: Key Person Insurance

When it comes to business ownership, maintaining a comprehensive business plan is extremely important. A business plan is a blueprint for a company's operation.  It lays out policies, procedures, and principles which guide the business and the tools to be used.  Of the many planning tools at the disposal of a business, there is one that is often overlooked. It is Life Insurance. 

Life Insurance has many uses in business beyond a group plan as an employee benefit. Life Insurance can actually be used to safeguard a business in the event of the loss of an important employee. This strategy is Key Person Insurance.

One of the worst things to happen to any business is for one of its managers, high producing salesperson, lead technician, chef,... to pass away.  This person's loss could possibly result in a loss of revenue, credibility, or leadership.  A Key Person policy offsets any potential drop in profits or pays for the replacement of this individual.  The business is the owner and beneficiary of this insurance policy. The business must have the key person's permission to take the policy on his/her life. Premiums are paid by the business which is NOT tax deductible.  However, the proceeds from the policy are received by the business free from income taxes.

No matter whether the business is large or small, all have that one (or more) individual whose loss would be a potential blow to the bottom line or operations.  Safeguarding your business by insuring the life of this employee could prove to be a prudent move.  

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.  

(Life Insurance Benefits could be subject to the claims paying ability of the Life Insurance Company.)