Key Person life insurance is very important in small and large businesses.
The best Key Person Life Insurance and why you need it
Facebook’s recent IPO filing included mention of the issue:
“The loss of Mark Zuckerberg, Sheryl K. Sandberg, or other key personnel could harm our business.”
Key Person life insurance in general is a business-owned life insurance which will insure you (the employer) against the incapacitation or death of a key employee. Every business won’t run smoothly without the help and efforts of the key staff.
What it means?
The aim is to compensate the business for losses and facilitate business continuity. The prolonged absence or death of a key employee can be detrimental to any business, which is why Keyman insurance works great for business owners.
Who is a key person?
A key person can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, the person could be a director of the company, a partner, a key sales person, key project manager, or someone with specific skills or knowledge which is especially valuable to the company.
The best way to structure Key Person insurance is to have the policy owned by the business or employer of the insured. Then, any insurance benefit in the event of the loss of the key person is paid directly to the business, as the policy owner.
The benefit paid to a business with Key Person cover is to cover the revenue and/or capital contribution made by the lost employee. The proceeds of the revenue portion of the policy are tax assessable, and that portion of the insurance premium is tax deductible. However, the proceeds of the policy which are attributable to the capital portion of the policy are generally not tax assessable meaning that portion of the premiums is usually not tax deductible.
How much Key Person insurance is enough?
You need to look carefully at your business in order to answer that, as the coverage amount will depend on your current business commitments, and the role of the key person. There are a number of ways you can calculate a coverage amount:
- Replacement cost method. Work out the costs to replace the Key Person.
- Contributions to earnings method. Take out Key Person insurance for the percentage their earnings contribute to company revenue.
- Multiples of income. Use the current salary of the Key Person, multiplied.
If you want to speak to a professional advisor about the key man life insurance and how much you will need it, please call us at 813 964 7100
or visit www.MintcoFinancial.com