Key Person Life Insurance Strategies

Transcription

1 Key Person Life Insurance Strategies The information contained in this presentation is being provided with the understanding that it is not intended to be interpreted as specific legal or tax advice. Individuals are encouraged to seek the guidance of their own personal legal or tax counsel. through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

2 Why Consider Key Person Life Insurance Key employee life insurance helps reimburse a business for economic loss that occurs when a key employee dies. The insurance covers the life of an employee who is critical to the success and profitability of the business and pays a cash benefit to the beneficiary should the key employee die. through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

3 What is Key Employee Life Insurance? Key employee life insurance is not a specific type of life insurance policy, but it is a way to use life insurance to offset a business risk. through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

4 Who is Considered a Key Employee? A key employee can be anyone who: Is responsible for management decisions Is highly paid Has a significant impact on sales Has a special rapport with customers and creditors through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

5 How Could a Key Employee s Death Affect the Business? Loss of management skill and experience Disruption in sales or production Credit difficulties such as inability to make payments or creditor reluctance to extend credit Increased expenses associated with hiring and training a replacement through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

6 Key Employee Insurance Protects Your Business Against the Loss of Its Most Vital Assets Managerial Skill & Experience No insurance can replace the intangible values of a person, but key person life insurance can provide cash to the business to make up for the loss caused by the death of a key person, to hire a replacement, to cover bank loans or other liabilities, to keep a business going. through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

7 How Much and What Kind of Insurance is Needed? There is no specific way to measure how much key person insurance you should have on your key employees. A multiple of salary, such as 5x, is often suggested. Or the need may be assessed based on the cost of hiring a replacement and loss revenues. The answer to the question of what kind of insurance to use depends on the need and whether special benefits are also to be provided to the key person (supplemental income, retirement benefits, etc.) through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

8 How Does Key Employee Insurance Work? The business applies for and is the beneficiary of a policy on the key employee s life The business pays the premiums, which are not tax-deductible since the business is the beneficiary of the policy Proceeds are typically exempt from federal income tax, but if paid in installments, the interest portion of each installment is taxable. Proceeds may be subject to the alternative minimum tax. If properly structured, the insurance has no tax impact on the employee unless the employee is also one of the business owners. In this case, the value of the deceased owner s business interest in his or her estate may be increased when the business receives the proceeds through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

9 What if the Employee Doesn t Die While Employed? The cash value of the policy will be available to the business to use for other purposes The policy can be used as leverage with creditors to demonstrate financial stability or can be used as collateral for a loan For key employees who are owners, the policy could help fund a buy-out of the deceased person s business interest If the policy is not needed to protect the business, it can be earmarked to provide deferred compensation funds or retirement income for the key employee through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN

10 The Help You Need for Planning As you plan for your business and its future success, you will find yourselves presented with many alternatives. That s were we can help. Together, with your other advisors, we can prepare a plan so your business will go on, intact and healthy, for years to come. For More Information, Please Contact: Ricke & Associates 425 Bank Street New Albany, IN Phone: (812) , Fax: (812) through MML Investors 8425 Woodfield Crossing, Suite 220, Indianapolis, IN