Howell & Associates Advanced Planning - Green Bay, Wisconsin

Client Profile

Any successful business should consider Key Person Protection. However, look to businesses with any of these characteristics:

• Strong Entrepreneurial Owners

• Key Sales Personnel or Managers

• Skilled Professionals

• Specialty Products or Services

Key Person

For many business owners, the viability of their business depends on a select few individuals. They may be the owners of the business, or they may be employees with critical technical ability, unique client and sales skills, or a specialized practice. If such a person were to die, the business might suffer:

• Disruptions in management
• Delayed product launches
• Loss of earnings and customers
• Credit issues

Replacing a key person will take time. Whether the vacany is filled with an existing employee or a new hire, the business must locate, recruit and groom a replacement to fi ll the gap. Following an unexpected death, a Key Person Protection program offers a death benefi t to help keep the business afloat. There are many approaches to valuing a key person. These can range from:

• Multiple of Salary
• Loss of Value to the Business
• Cost to Replace the Key Persons
• Sales Profits
• Cost to Replace the Key Person’s Contributions to Income

Example of Benefits For The Employer:

Cost of Replacement
$125,000 was used to recruit, offer a sign-on bonus and relocate a new sales rep, Jeff, who was highly regarded by both the new account and one of Paul’s existing accounts. This allowed Cogswell to maintain its critical relationships. $50,000 was allocated to special training and marketing to help Jeff get up to speed more quickly than the average new recruit.

Line of Credit
$200,000 was posted as collateral to help keep a creditor from raising the interest on a credit line.

Retention Device
$250,000 was paid to Paul’s widow. If Paul had survived to retirement, the policy values could have been used to fund a non-qualifi ed retirement benefi t. Since Paul passed away, a death benefi t was paid for his years of service.

example of Benefits For the Employee:

$250,000 was paid to Paul’s widow as a special bonus for his years of service.