Key Employee Insurance: What if an important employee died tonight?

What is key employee life insurance?

Just suppose your CEO died tonight. Think about what would happen if your number 1 sales person passed away tomorrow. What would you do? First, think of the emotional pain. Second, think of the business financial pain.

How long would it take to replace them and get the new person to be able to do all that they do know?

Weeks? Months? Longer? What kind of financial impact would that have on your business?


That raises a few more questions:

  • What makes someone a key employee?
  • What is key employee insurance?

What makes someone a key employee?

Which employee do you rely so much for you business income that if something happened to them you would negatively affect your business financially? Most small businesses understand that losing their 1 or 2 key people that have the special knowledge, skills and connections that make up their business income would be catastrophic. The funny thing is that less than 22% of these business do anything about it. Talk about an ostrich sticking his head in the sand!

What do those insightful business owners do that separates them from the rest of the pack?

They wisely invest in key employee insurance. That raises our next question then.

What exactly is key employee insurance?

Simply put, it is a life insurance policy that can compensate your company when a particular key employee sadly passes away.

This policy is designed to soften the financial blow to your business when you lose such an asset like them.


How much key life insurance do I need?

Every business is different, but as the owner, you are in the best position to figure that out. However, here are a few guidelines to help you:

  • How much of your annual sales did that person bring in? That is a great place to start.
  • How much will it cost to find and hire a replacement?
  • How long will it take to train some one to replace them?
  • How much will it cost to train them?
  • How much revenue will be lost until they are trained and up to production?

Here is a question your key employee might be wondering:

Who is the beneficiary of the life insurance policy?

Since the key employee has to agree to this policy, they may ask you who gets the money upon death? This policy is owned & paid for by the business, so the business is the beneficiary. You might want to add a separate life insurance policy to help your key employees family.

Is this a tax write off for my business?

The good news is that it is not a write offWhy is that good news? This generally means that payouts for key life insurance policies are not taxed! Of course we suggest that you talk to your accountant about your particular situation.

What kind of life policy should we get for our business?

The answer is that it depends. Are you only interested in being compensated for income losses caused by their death? Then term insurance is the way to go. Are you interested in building a policy that has some cash value down the road? Then contact your business insurance agent at today for a free quote. Our advisors are standing by to answer your questions right now.