Protect Your Business with Key Man Life Insurance and Deferred Compensation Plans
I’d like to discuss how providing for your employees can be great for your company.
I like to talk with our business owner clients about what would happen to your business if for some reason one of your key employees died or became disabled. And unfortunately, this touches all too close to home. One of our clients owns a construction business and recently, they lost their senior vice president of operations—just a very unfortunate situation, totally unexpected. This was someone who was important to the operation; he ran most of the projects in their business. He was there one day, and gone the next.
What would that cost your business, if something like that happened? Fortunately, this was a company that had thought ahead. They had a key man policy that provided a lump sum of cash to the business when this man passed away. It’s going to take some time to recover, but with this cash, they will be able to go out and hire another executive. If you have key people in your operation, it does not cost a lot to put some life insurance policies in place on those folks, and disability policies in place. It protects you, it protects them, and it protects their families if something happens to them.
One thing I would also say, if these people are really important to you, you might want to think about how you incentivize them to stay with your business. Oftentimes, we’ll put into place an executive deferred compensation plan. It’s a plan in which you defer some income for that individual so that somewhere down the road, they get a big payout for a number of years, but they have to stay with you and continue to work with your company. If they stay with you, you should reward them. That’s how we use deferred compensation and key man insurance with our business clients.
This has been a Principled Wealth Moment.