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KEY EMPLOYEE INSURANCE

Usually, companies or individuals buy life or pension plans that relate to the annual income or salary of the individual. Obviously, when this life benefit is paid, the distribution is the personal property and part of the estate of the individual. In other words, the Company does not benefit from the coverage in the event of the employee's death.

In some instances, employees with special knowledge, vast experience or business relationships, contribute much to the success of the Company. As a result, in the event of their sudden death, the replacement of such an employee would be difficult and in many cases the Company will suffer and potentially lose much of its business. The employee is consider to be a Keyman in the operation of the business.

To ensure that reasonable funds are available to make up for the unexpected loss of a keyman, employers have the choice to buy an insurance policy on the life of this person(s). The company pays for the cost of the insurance policy and the Company will be the beneficiary in case of death.

Keyman protection is an essential policy. Every employer should consider buying a policy on the life of key person(s) who contribute to the success of the company. Such policies are critical in the prevention of difficult situations in the event of unfortunate and untimely death of key persons.

Taking out a keyman policy is often linked to agreements with banks or other lenders. It is often the case that such a policy is a prerequisite to an injection of funds into the business. Therefore, the primary purpose of taking out the policy, may be to obtain funding from prospective investors.

The Company should consult a tax expert to determine if keyman premiums are tax deductible and whether proceeds are considered income or capital.