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
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.
$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.