Secure your future with personal financial planning
Plan Today for the Future:
As a business owner, you recognize the importance of insuring your building, inventory, and equipment. These assets are vital to the success of your company. But have you considered what would happen if a key employee died unexpectedly or became disabled?
Key employees are the foundation of a successful business. They are business owners, sales directors, CFOs, or any other individuals who are sources of leadership and profitability, and who would be extremely difficult to replace. Unless the proper steps are taken, the death or disability* of a key employee can be devastating to the financial well-being of your company.
The Solution: Key Employee Protection
Funding a plan to protect key employees may give your business the additional funds it needs to:
1) Hire and train replacements
2) Replace an employee’s contribution to profits.
3) Maintain the confidence of clients and creditors.
4) Meet possible loan obligations if the key employee was also a guarantor on business loans.
There are three basic options for funding the costs associated with the sudden loss of a key employee: cash accumulation or a sinking fund, borrowing from a bank or life insurance.
Option 1 — Cash or Sinking Fund
In this option, a business establishes a savings plan, much like a bank account, to protect itself from the death or disability of its key employees. At death, the cash in the savings plan is used as a source of funding. Unfortunately, this method has several drawbacks:
1) A savings plan accumulates funds over time. What if funds are needed tomorrow?
2) Accumulated cash could cause an accumulated earnings problem.
3) Any growth on the accumulated funds may be income taxable.
4) A savings plan may be depleted to pay for other expenses.
The business owner will pay dollar for dollar, thus depleting the amount of cash that could be used elsewhere.
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