Key Employee
insurance
Protection for business
Term
Life insurance can help retain key employees.
The purpose of
key-person insurance is to indemnify a business firm
for the
loss of earnings brought about by the death of a key
officer or other employee.
Many business firms have been built
around some one man or woman whose capital, energy,
technical knowledge, experience, or power to plan and
execute make him or her
a most valuable
asset of the organization and a necessity to its successful
operation.
To Illustrate
§ A corporation or firm may be vitally interested in one of
its officers whose
financial worth, or ability as an
executive, may be the basis of its general credit rating.
§ A manufacturer may be dependent upon someone who alone
possesses the chemical or engineering knowledge necessary to
the concern.
§ A publishing house may have engaged someone who alone can be
the author of
a proposed work and may be obliged to incur
considerable outlay before it is written.
§ The sales manager of a large business establishment may have
made him- self
or herself indispensable through his or her
ability to organize an efficient body of sales people, to
employ the most effective methods of selling, and to develop
profitable markets.
§ Some officer of the concern, although not actively engaged
in its daily operations, may prove indispensable because he
or she is its principal owner and because
his or her
experience and business connections make that person its
chief advisor.
These are only a few illustrations to show the importance of
a human value as an asset to
the operation of a business.
The loss of valuable lives to a business can be a more
serious loss than a fire or any of the other sources of loss
in business.
If the key person is insured for the benefit of the
business, the firm would immediately upon the death of the
key person, receive the face value amount of the policy.
The insurance proceeds would help meet any obligations the
business has during the period
of adjustment and maintain
the confidence of creditors.
Making the business the beneficiary of a properly funded
policy on the lives of the officers or other key employees
will guard against these losses.
It is difficult to determine the
economic loss that would be suffered by the business in the
event of the loss of a key person.
Estimating the loss of a key person may be approached
in
terms of lost earnings, or measured by the additional
compensation necessary to secure
an experienced replacement.
Consideration should be given to whether the loss is a
temporary or a permanent one.
The Mechanics
§ The insurance is
taken out on the life of the key person, paid for by the business, and made payable to the
business as beneficiary.
§ Some form of
low-premium permanent life insurance is taken out, and the
accumulating cash value becomes an asset on the balance
sheet of the corporation.
§ Temporary needs in
this regard should be secured by a temporary life insurance
policy, namely term insurance.
