Life insurance for key people of a business or organization.

1. Key Person Insurance

2. Caveat
This presentation is for informational purposes only. The speakers and
presenters appearing at this meeting are solely responsible for the
content of their presentations and may not necessarily represent the
opinions of Aviva or its subsidiary companies. Neither Aviva nor any of
its Agents or Employees are in the business of giving tax, legal or
accounting advice. Attendees should consult with their own professional
advisors to determine the appropriateness of any course of action. In
order to comply with certain U.S. Treasury regulations, please be
advised of the following: Unless expressly stated otherwise, any U.S.
Federal tax advice contained in these materials is not intended or written
to be used, and cannot be used, by any person for the purpose of
avoiding any penalties that may be imposed by the Internal Revenue
Service.
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3. A company’s most valuable assets
If one of these key
employees is lost, your
business may
experience financial
difficulties.
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4. Key Person Insurance
“Take away my factories, my plants; take away my
railroads, my ships, my transportation; take away
my money; strip me of all of these, but leave me my
men, and in two or three years I will have them all
again.”
- Andrew Carnegie
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5. Ask Yourself...
• Who do you rely on the
most?
• Which employee would
you fire last?
• Who runs the business
when you are gone?
• Who is in charge of
sales?
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6. Ask Yourself...
• Who makes the money for the company?
• Who is in charge of production?
• Who is going to replace you when you
retire?
• Who is in charge of research?
• Who finances the business?
• Who brings in the most revenue?
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7. Examples of Key People
• Has managerial
responsibility
• Is responsible for sales
• Is connected with
creditors
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8. Examples of Key People
• Is responsible for bank financing
• Is responsible for manufacturing
• Has designed a product
• Has connections with regulators to get
approvals
• Frequently is the highest paid employee
• Provides special skills unique to the
business
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9. Would a Loss of a Key Person?
• Create a void you
couldn’t fill from
within?
• Interrupt the normal
flow of activities?
• Affect financial
control and
general management?
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10. Would a Loss of a Key Person?
• Shrink your customer
base?
• Mean losing a
specialized skill?
• Halt or delay
special projects?
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11. When a Business Loses a Key Person
• Finding a replacement
becomes necessary
• Business earnings are
reduced
• Employees become
concerned
• Customers shop around
• Financing is strained
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12. How To Place Value on Key
Employees?
• Determine how long it will take to find and
train a replacement
– Is special training required?
– Are the skills readily available?
– If a replacement is found, are additional
salary and bonuses required to attract him/
her?
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13. How To Place Value on Key
Employees?
• Estimate the amount of lost earnings if a
replacement is not identified quickly.
– Lost earnings due to lower production
– Lost earnings due to
lost sales
– Lost earnings due to
operational inefficiencies
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14. Options To Funding Key Person
• Sinking fund/Savings
account
• Current profits
• Life insurance
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15. Why Fund With Life Insurance?
• Accumulates tax-deferred
cash values
• Security
• Income tax-free death
proceeds
• Can provide retirement
benefits
• Cash values are assets of
the company
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16. How Key Person Life Insurance Works
• The employer owns and is the beneficiary of
insurance on the key employee’s life
• Employee must acknowledge employer’s ownership of the insurance
by signing
Notice and Consent for Employer Owned Life Insurance form
(IRS requirement).
• The employer pays the premium to the life
insurance company
• If the employee dies, policy proceeds are paid
to the employer
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17. How Key Person Life Insurance Works
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18. What if…
• A Key Person leaves the
company?
– Maintain cash value as an
asset on the books
– Surrender the policy for its
cash value
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19. What if…
• A Key Person retires?
– The cash value can be
used to supplement
the key person’s
retirement income
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20. Remember
Three steps to protecting your business:
1. Identify your key-employees
2. Value the potential loss of those key employees
3. Implement a plan to protect your business
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21. Remember
Every company has employees who are key to
the financial success of the organization. The
loss of a key employee could jeopardize the
financial future of the business.
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22. Act Now!
• Take the time to review your current situation
• Analyze the solutions
• Talk to your Aviva Life and Annuity
professional
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23. Questions
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