Key Man Life Insurance Explained for Business Owners

Key Man Life Insurance can prevent one of the greatest threats to you, your business, and therefore your livelihood. themoneyadvantage.com/key-man...
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We often think of our assets in business as things like the goodwill that we have or our reputation or our equipment and inventory and our unique systems and processes that make us be able to deliver that unique value.
Think about someone in your business which is one of those critical components, almost like a pillar in your business.
That might be a key salesperson or possibly a key technician, depending on what type of business you have.
Often, these people have decision-making power.
They usually have a high salary, and they have this skill and knowledge and expertise that would be extremely difficult to replace.
If you lost that key person, not only are you missing that person but that could have a potential impact on your business because they're no longer able to provide that unique experience, skill, and ability.
You're going to have to find somebody to replace them, and that costs money, and it costs you time.
In that time frame, you're going to have to hire somebody, train and develop them, which also costs money, and then you're going to be in a position where you have to pay for mistakes that they might make along the way as they get up to speed.
What are the few ways you can think about this cost in advance and be able to prepare for that so that it doesn't sink your business?
Well, one option is something called a sinking fund. This is where you put money aside on a monthly or annual basis, and it accumulates large enough that you can use that sinking fund to compensate if you did lose that key employee.
The challenge is, an event like that is something challenging to plan for. You have no idea when or how or if it might happen, and so a sinking fund may not have sufficient funds.
You can pay out of cash flow. Maybe your business is thriving right now. But think about the potential loss of cash flow that could occur if you lost that key person.
Would you have enough cash flow to cover in the meantime the shortfall that is caused by their absence?
You also could think about business reserves. But do you want to deplete those reserves at a time that you might need them the most?
Sometimes people would look at getting a business loan; however, the bank may look at your business as riskier now that that person is gone.
You may not have the same goodwill and the corresponding revenue stream at that critical moment.
Here's why key man life insurance can fill the gap powerfully. It's the only self-completing sinking fund that you can have; because you know that if that person passes away, you'll have the full death benefit to be able to compensate the business so that you can sustain during that critical moment.
key man life insurance is something that you're paying over time, so you do not have to come up with these funds all at once.
Another thing to think about is there are different types of life insurance. If you use cash value whole life insurance, specifically an infinite banking policy that's high-cash value, dividend-paying, whole-life insurance policy with a mutual company, what you have is cash value that is accessible to the business that the business can use for anything.
You're getting your dollars to do multiple things.
One thing I want to mention about key person life insurance is that the business is paying the premiums. The policy's on the life of the key person. And if that person passes away, then the beneficiary is the business. So the proceeds or the death benefit is being paid to the company.
Now, a couple of other things you want to think about with this are that you might want to have that policy be transferable, meaning if that key person moved on from your company and you hired another person to fill their role, you could transfer the policy without having to start a new one. That might be subject to underwriting, but you're going to be able to maintain your cash value.
When you look at the big picture, this is a compelling way to get your dollars doing more than one thing. Not only can you build business reserves but you also can protect or mitigate against financial loss.
This solidifies your peace of mind and is an ultimate protection component. It is a protection that allows you to have the peace of mind of knowing that the potential loss of a key person is not going to devastate you financially.
#keymanlifeinsurance #keypersonlifeinsurance #keymaninsurance

[@photographybya7602]

It’s impressive to see someone so young provide such a compelling presentation on a lesser-known insurance product. Well done!

[@TheMoneyAdvantage]

Thank you for the kind words!

[@erickposada7684]

Great explanation. I'm an agent with New York Life and that is why I always tell business owners.

[@TheMoneyAdvantage]

Thank you for the kind words! So glad you found it valuable!

[@Michelle340373]

Thank you for sharing. The information is very useful.

[@TheMoneyAdvantage]

Glad it was helpful! Thank you for watching!

[@huwannnnnnn]

MDRT secured ❤

[@TheMoneyAdvantage]

Thank you for watching!

[@SapphireSweed]

Do you use IBC structure for your key person policies? I'm an agent and have been researching these policies without much info on how to build these policies, as well as buy/ sells. Thanks

[@TheMoneyAdvantage]

Thank you for asking! Yes, it is another way to get more than 1 use of the same money. It is not a one-size fits all, as each policy is tailored to each unique situation.

[@reoman8179]

as a business owner can you set this up for a 1099 employee? also can a business pay for the premium for tax write off?

[@TheMoneyAdvantage]

Thank you for watching! I would say generally now 1099 contractors are not insurable, however there could be rare exceptions, which would require convincing the insurance company that there are not readily available replacements as most 1099 contractors would be considered. When your key person passes away, the insurance payoff will infuse your business with capital (income tax-free in most cases) to cover costs and help you remain afloat. And because the death benefit would be income tax-free to your business, the premiums you pay wouldn’t be tax-deductible.

[@MelissaGardnerRealtor]

What the employee works at a new company and the employer never changed the policy and the employee dies at the new job?

[@TheMoneyAdvantage]

Thank you for watching! Whoever is named as the beneficiary of the contract would be paid the death benefit. Life insurance policies are contracts.

[@kriskris5989]

Are the premiums paid from the business for the key person life insurance policy , tax deductible/PreTax dollars? Can these premium be written off for taxes?

[@TheMoneyAdvantage]

Thank you for watching! Because the death benefit would be income tax-free to your business, the premiums you pay are not tax-deductible. themoneyadvantage.com/key-man-insurance-protecting-your-business-profits-and-livelihood/#h-how-a-key-man-insurance-policy-is-taxed

[@kriskris5989]

@@TheMoneyAdvantage thanks for your response,i am reviewing the link you sent me

[@anthonyrogers6469]

How can I contact you for more info?

[@TheMoneyAdvantage]

Thank you for commenting! If you go to our website (themoneyadvantage.com/) you can find out more and book an appointment on our calendar when you are ready to talk with someone! You can also get our Privatized Banking guide here: privatizedbankingsecrets.com/freeguide

[@dantemiller1069]

Does the "Key" employee know their boss have them on the policy? If not; Then this is VERY dangerous.

[@TheMoneyAdvantage]

Thanks for watching. Yes the key employee would need to know and provide written consent.