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.
Washington Checklist — Key Employee Life Insurance is a comprehensive insurance solution designed specifically for employers in Washington state who wish to protect their key employees. This type of insurance provides financial security and peace of mind in the event of an unfortunate incident, such as the death of a valuable employee. By offering this insurance coverage, employers can safeguard their businesses from potential financial disruptions and ensure continuity in their operations. Key employee life insurance can be categorized into different types based on the coverage and benefits it offers. These variations include: 1. Basic Key Employee Life Insurance: This type of policy provides a lump sum payout to the employer in the event of the covered employee's death. The benefit amount is typically predetermined based on the employee's level of importance within the organization. 2. Salary Continuation Key Employee Life Insurance: With this policy, the employer pays premiums to ensure that in the event of a key employee's death, their salary will continue to be paid to their beneficiaries for a specified period. This can help provide ongoing financial support to the employee's family and mitigate the impact on the business. 3. Business Overhead Expense Key Employee Life Insurance: This specialized policy assists with the financial burden of running a business should a key employee pass away unexpectedly. It covers expenses such as rent, utilities, employee salaries, and other operational costs until a suitable replacement can be found. 4. Key Employee Dual Life Insurance: A dual life insurance policy covers two key employees, usually business partners, where the death benefit is paid out upon the death of either person. This type of insurance ensures the business can continue operating even with the loss of two essential individuals. 5. Split-Dollar Key Employee Life Insurance: This arrangement involves a split in the cost of premiums between the employer and the key employee. Upon the employee's death, the employer receives a portion of the policy's death benefit, while the employee's beneficiaries receive the remaining portion. 6. Executive Bonus Key Employee Life Insurance: In this type of policy, the employer compensates the key employee with a bonus that covers the cost of life insurance premiums. The employee has ownership of the policy, and the death benefit is paid directly to their beneficiaries. Washington Checklist — Key Employee Life Insurance is an essential consideration for businesses operating in Washington state who want to protect their most valuable assets. It helps mitigate financial risks associated with the loss of key employees and ensures the continuity and stability of the business. By exploring the various types of key employee life insurance policies available, employers can select the one that best fits their needs and provides maximum protection.
