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Life Insurance for Small Business or Shareholders

Mitigating Business Risks by Using Life Insurance

Business owners, like you, have grown by hiring outstanding people and, to varying degrees, the profitability and success of your company depend on these key people. The purpose of a key person or key man insurance is to help you recruit, hire and bring this new person “up to speed” in your company using the proceeds of a life insurance policy. In addition, it should cover any decrease in sales and profits through this process. This type of planning should be considered for anyone who is a business owner, shareholder, partner or key employee of a small business or corporation. A corporately owned life insurance policy can be used as collateral for a loan, capital for a buy-sell agreement or tax and estate planning for a business owner or shareholders of a corporation.

Advantages of Having Sufficient Key Person Insurance

  • If this is someone known to your bank it could make them a bit nervous about your line of credit. If this is a concern, provide funds to pay down the credit line.
  • Some key clients might even have a concern that could be alleviated by knowing that there was an infusion of cash to find a well-qualified person quickly.
  • If a key person is also a shareholder, then you should look at having life insurance to provide cash to buy the shares back from the estate of all principal shareholders in the event of their death this would be in addition to key person insurance as you will still have to replace them.

Steps to Setting Up Key Person Insurance

  • First, discuss this with the person(s) you are thinking of covering. Confirm that your key person will agree to complete an insurance application which will not benefit them directly. We have had key people not want to do this and we have been asked to help alleviate their concerns.
  • Calculate how much life insurance will be required for the key person insurance. Some considerations are; Hiring a new employee – it will cost six months salary if you use a head hunter which is advisable to get a qualified replacement quickly. How many months you will pay the new person before they are fully functioning Cost of a temporary employee if appropriate – if a key person in administration, like finance, you still need this work done during the interim. If sales will be seriously affected you should factor that risk in as well. Lost sales and profits during the replacement time which could easily last a year or more.

  • Decide what kind of life insurance to purchase. A ten year term policy is the most cost effect solution but a few have purchased a universal or whole life policy as an incentive to commit to the company for a long time. We would welcome a conversation on this if it would be of interest to you.
  • Get a quote to see how much it will cost. It will not be very much to provide this peace of mind. We have experience and a proven track record of providing key person insurance.

As an owner, you have to pay significant insurance premiums on your business property and other assets to protect against the risk of a serious fire or possible liability issue.

Well established businesses should be aware of the probability of a key person having a serious illness or even death is far more likely than a casualty or property insurance incident. Such an event will affect your bottom line. We strongly urge you to consider key person insurance as part of your business risk planning and to have this risk covered as well.

We had an employer who was in the business of importing safety supplies and one employee was responsible for over 50% of the company’s sales due to his time in the industry and experience. The owner estimated that if something were to happen to him, his sales could decrease by 30% and it would be very difficult to replace him without sufficient short-term capital. The agent working with this business owner had to write a covering letter to the insurance company supporting the reasons. We were able to put in place a key person policy of over $700,000 of coverage which was far more than twice his salary.

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Compare Key Person Insurance Quotes Online

The quickest and most reliable way to compare key person insurance plans is to get multiple quotes from an online rate comparison service like IDC Insurance. Not only will you be able to compare life insurance quotes from several top-rated companies, but you’ll be able to do so from the comfort of your own office or home. You’re free to do it at your own pace so you can take however much time you need to feel confident about your decision. Our accredited insurance agents will help guide you through this process and assist you to buy a policy for yourself, your business partner or a key person in your company when you’re ready.

Compare Life Insurance Quotes
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Video shown above courtesy of Life Happens, a nonprofit organization dedicated to helping people take personal financial responsibility through the ownership of life insurance and related products. IDC Insurance is an affiliate member of Life Happens PRO.

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All product names, trademarks, and trade names are the property of their respective owners. The Insurance Council (BC, AB, SK, MB), Financial Services Commission (ON), Chambre de la Sécurité Financière (QC), The Superintendent of Insurance (NB, NL, PE, NS) are the provincial and federal authorities that regulate, supervise and enforce standards for life insurance professionals.

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