Key Person Insurance

1. Key Person Insurance

2. What are the 4things that happen to key people ?....

3. They die • They become disabled • They quit • They stay with a company until they retire Each creates problems for you, the employer of the key people.

4. The success or failure of your business depends on key people who are part of management They are the people who..... • Make major business decisions • Produce sales results • control finance • Have production “know-how” • Have creative ideas Every successful business must have one or more of these individuals !

5. Your business has its future invested in its key people.... • Competition is becoming more intense • Production and sales methods are continually changing • Operations are becoming more complex • Constantly rising costs and taxes mean steadily decreasing margins and profit

6. The death of a key person creates real financial problems.... • Cost of finding and attracting a suitable replacement • Loss of time, production, profits...until the new individual becomes “qualified” • Credit may be impaired or lost entirely • An important project or transaction may have to be curtailed or canceled • Competitors become more aggressive while customers feel uncertain • Employees worry about job security • Inevitably, the business suffers a serious financial shock. Cash will be urgently needed.

7. There are 4 methods of supplying cash upon the loss of a key person….

8. 1. From future earnings or surplus cash But if the loss of a key individual means reduced income, then working capital and credit can be jeopardized by future demands on shrinking profits.

9. 2. By borrowing But if credit is weakened it may be difficult to borrow adequate funds. The need is to increaseASSETS not liabilities.

10. 3. By building a special reservefundnow But sufficient cash can be accumulated only if death does not come to soon. The fund would be subject to any limitations on accumulated surplus. It is not economical to tie up funds which could be better used as working capital.

11. 4. By insuring the life of the key person in favor of the company For a cost, usually less than the interest on the money, funds are guaranteed to be available immediately when the need arises.

12. Cash,guaranteed when needed through key person life insurance, will absorb part of the financial shock, bolster credit, help attract and train a replacement and reassure customers, suppliers and employees

13. Other Benefits... • Mortality gain is payable out of the Company’s Capital Dividend Account TAX FREE. • Provides an increasing reserve of readily available CASH. • CASHaccumulates on a tax deferred basis. • Provides excellent collateral.

14. Other Benefits • Can be used to pay death benefits to deceased’s widow(er). • Exempt values can assist in funding of retirement benefits. • Instills confidence and loyalty in the key person.

15. Profits, for the most part, result from managerial skill applied to physical assets. Insuring your key people insures your greatest source of profits. Without this protection, profits may suffer. Today the choice is yours. Which will it be ?

16. How does it work ? The Business Purchases and retains all ownership rights to a policy on the life of each key person Premiums Proceeds

17. Let’s determine what the loss of a key employee could mean to your firm