Key-person insurance benefits are often used to buy out the insured person's shares or interest in the company. Buy-sell agreements, which require the deceased executive's estate to sell its stock to the remaining shareholders, legally facilitate this process. Proceeds from key-person insurance can also be used to recruit replacement management.
The following form contains some critical questions you should ask your agent or broker when considering this type of insurance.
Texas Checklist — Key Employee Life Insurance is a comprehensive guide providing detailed information and steps for employers in the state of Texas to acquire essential life insurance coverage for their key employees. This guide explores different types of key employee life insurance policies available to Texas businesses, ensuring that they are equipped to handle any unforeseen circumstances and secure the financial future of their organization. Types of Texas Checklist — Key Employee Life Insurance: 1. Term Life Insurance: This type of key employee life insurance offers coverage for a specific duration or term, typically ranging from 10 to 30 years. It provides a payout to the employer in the event of an untimely death of the key employee during the policy term. Term life insurance offers a cost-effective solution for protecting the financial interests of the employer. 2. Whole Life Insurance: As the name suggests, whole life insurance provides coverage for the entire lifetime of the key employee. This policy ensures that the employer will receive a death benefit regardless of when the key employee passes away. Whole life insurance also accumulates a cash value over time, which can be borrowed against if needed. 3. Universal Life Insurance: Universal life insurance is a flexible type of key employee life insurance that offers a death benefit as well as a cash value component. It allows employers to adjust both the premium payments and death benefit amounts according to the changing needs of their business. This flexibility makes it an attractive option for businesses with fluctuating financial situations. 4. Variable Life Insurance: Variable life insurance provides employers with an investment component in addition to the death benefit. It allows employers to allocate a portion of the premium payments to various investment options, such as stocks and bonds. The cash value of the policy rises or falls based on the performance of these investments. The Texas Checklist — Key Employee Life Insurance provides a complete breakdown of the steps involved in acquiring the appropriate coverage for key employees, such as: 1. Analyzing the value of key employees to the organization and their potential financial impact if lost. 2. Identifying the type of life insurance policy best suited for the business. 3. Determining the optimal coverage amount based on factors like salary, responsibilities, and contribution to the company. 4. Researching and comparing various insurance providers to get the best possible rates and terms. 5. Understanding the application process, required documentation, and medical examinations, if applicable. 6. Evaluating additional riders or endorsements that may enhance the coverage, such as accelerated death benefits or disability income riders. 7. Regularly reviewing and updating the policy to ensure it aligns with the company's changing needs and the key employee's circumstances. By following the Texas Checklist — Key Employee Life Insurance, employers can safeguard their financial stability and mitigate the risks associated with the loss of a key employee. It is crucial to consult with professionals like insurance agents or financial advisors specializing in this area to navigate the complexities of key employee life insurance effectively.
