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Andrew Carnegie once suggested that all of his factories, railroads and money could be taken away, but if he retained his workers, the Carnegie fortunes would return through hard work within three years.
Sound businesses understand their most vital assets are people. Key-person insurance can help protect your business from their loss. You can write a life insurance plan on a key employee with a key-person insurance plan.
Here are three factors that can make key person insurance important for you:
- If the person dies, the key person insurance can help to compensate for the person's loss to your business and for the time you spend on replacing that person.
- The plan can be used as an important reward for key employees. The plan's death benefits and cash value can fund a non-qualified deferred compensation agreement for the key employee in your business.
- If your key employee leaves, the business continues to own the insurance contract.
You can identify a key person in your business
Who is vital to the profits of your business? Who has the essential management skills or sales ability or creativity or a rare specialty? That person, or those people, are key to your business. Key-person insurance can be used as an incentive for them and as a plus for your company.
You can calculate the value of a key person
Here's a simple way to understand how valuable a key person is to your business. Multiply the person's salary by the time it would take to replace and train that person.
For example, a key person who makes $50,000 per year and would take two years to replace is worth $100,000 to your business.
Or you could estimate the value of the business with and without the key employee, and take the difference as that person's key value.
The advantages of cash values in the key-person plan
The key-person insurance plan, owned by your business, can be:
- A source of funding for any purpose.
- Borrowed at any time at competitive interest rates.
- Used as collateral for loans.
A key-person plan can help you improve employee morale and loyalty, it can attract a higher level of employee and it can increase creditor confidence in your business.
Contact your financial representative with Thrivent Financial for Lutherans to find out how key-person insurance could help your business.
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