Key Employee Life

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You know what it takes to build a successful business.

Your business is most likely your largest asset. It is used to provide a majority of current income to support your family, will be looked to as a source of wealth at retirement, and may be the legacy you wish to leave to future generations.

Developing a business continuation plan in the case of death or disability is critical to the continued well-being of the business and the family. Businesses can transition expectedly or unexpectedly; that’s why it’s important to plot a course toward protecting the business and minimizing the impact an unexpected death or disability of a Key Employee.

Key Person Insurance

You value your key employees and the contributions they make to your business every day. However, have you thought about the impact losing one of them would have on your business?

Think about the value they bring, whether it’s their creative genius, sales acumen or leadership qualities, and what those characteristics are worth to the business. Is it something worth protecting? Having the foresight to protect your business against the loss of an essential employee – perhaps a company’s most valuable asset – can mean the difference between business as usual or closing up shop.

Key person life insurance can help offer peace of mind in knowing that the financial stability of your business is protected in the event of a valued employee’s untimely death. The way it works is simple: You purchase a life insurance policy on the life of the key employee, naming your business as the beneficiary. If the key employee dies, the policy’s death benefit proceeds are paid to the business to help keep it going while you seek to fill the void left by the deceased employee. The funds could be used to temporarily replace lost revenue, hire a recruiter to help find a replacement employee or provide specialized training to a new or existing employee.

Key person insurance is ideally suited for businesses with:

• Owners, partners or executives that have a direct impact on company earnings.
• Salespeople who continually exceed goals or have relationships with important clients.
• Individuals who have specialized skills or technical knowledge that cannot easily be replaced.

Qualified Sick Pay Plan

Imagine if a key employee were to become seriously sick or injured. Maybe it’s your top salesperson or an employee who has been with you since the beginning. In addition to the potential impact to your business, the financial impact to that employee’s family and loved ones could be devastating. In a scenario like this, you might choose to continue paying that employee’s salary while they recover.

However, doing so is not quite as simple as you may think. The IRS will not consider the salary you pay while your employee is ill or injured to be a “wage,” since they are not actually working. This means you can’t deduct the wages from your company’s taxes or claim them as a business expense. But there is a solution: By planning ahead with a Qualified Sick Pay Plan (QSPP), your business can be better prepared – and reduce the risk of unforeseen tax consequences – if something unexpected were to happen to an employee.

A QSPP is an agreement that sets company policy before a disability occurs. It establishes who should be included, how much salary they will be paid, when payments start and how long the payments will last. The plan must be instituted prior to a covered employee becoming disabled and that employee must be aware of the terms of the plan. Additionally, the agreement must be in writing. With a QSPP in place, you can pay the employee’s salary and deduct their wages from the company’s taxes just as you would for a regular full-time employee.

A courageous decision is a good decision.

Choosing the path of business ownership is truly an honorable and courageous endeavor. A successful business begins with planning for and building a strong financial foundation. Business planning is not something that’s done overnight but having an understanding of the ways in which you can protect your business for the long-term is a smart first step toward helping set your business on the road to a more financially secure future.