Help preserve the life of your business with key employee protection.
Do you have a go-to guy or girl in your company—you know, the one who everyone counts on to hold things together and get the job done? Most businesses do, and their contributions are immeasurable. But did you ever stop to think about what would happen if that person suddenly passed away? Imagine the impact that could have on your day-to-day operations and the overall value of your business.
If you have a partner or employee that you can’t afford to lose, it’s important to make sure that you have the financial resources needed to buy out their interests or keep things running long enough to find a replacement. While that may sound easy enough, it can pose a challenge for small businesses in particular since many of them operate close to the margin.
In some cases, borrowing the money could be an option; however, you may find that banks and other lenders are often less willing to extend credit if they know how important the deceased was to your business. (This is especially true in the case of a co-owner or partner.) Moreover, the additional debt could put your company at risk if you used the business as collateral or the payments reduce profitability.
If you’re looking for a simpler, less risky option, you may want to consider a life insurance policy instead. Here’s how it works:
Your business purchases a life insurance policy on behalf of the key employee. Since your company is the owner and beneficiary of the policy, it is responsible for paying all the premiums. Should the insured employee die while the policy is in effect, the death benefit proceeds would pass directly to the business, providing an immediate influx of cash that you can use for debt repayment, liquidity, or even recruiting and training. What’s more, this money is typically free from federal income tax, so your business can use every penny.1
As you can see, purchasing a life insurance policy can be an effective way to safeguard your business and minimize the impact of a key employee’s death. And, depending on the type of policy you purchase, you may find it to be a cost-effective option as well.
This educational third-party article is provided as a courtesy by H. Ryan Denney, Financial Services Professional, New York Life Insurance Company | NYLIFE Securities, LLC. To learn more about the information or topics discussed, please contact Ryan Denney at firstname.lastname@example.org or (615) 410-5294.
1The Pension Protection Act of 2006 established that the death benefit of an employer-owned life insurance policy will be income taxable to the extent that the benefit exceeds premiums paid unless the parties fit into one of the specified exception categories, a specified form of notice is provided to the employee, and the employee consents to be insured.