By Dan Schulte, Vice President and Manager, Annuities and Insurance

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All businesses, regardless of their size, have key employees that are invaluable to the success of the company.  In a small business, each employee usually has a more direct effect on a company’s profitability due to fewer employees interacting with customers, creating products, and/or performing services.  As a result, the loss of a key employee due to death or disability is especially difficult for small businesses that rely more on a smaller number of people. To protect a business, life insurance and disability insurance can be purchased to “buy time” until a replacement employee can found.

Replacing a key person takes time and money, and could cost the business valuable clients during the transition to the new employee.  Key person life insurance is a way to help small business cover the financial losses that would occur should a key employee die.  When purchasing this type of life insurance, the business is listed as the beneficiary of the plan, and pays the policy premiums. If the key employee should happen to die, an income tax free* lump sum of cash would be paid to the business to help offset the loss of the key employee.    Providing this protection can help assure stability of the business for employees, customers, and creditors if that key employee should happen to pass away.

Business Overhead Expense (BOE) disability insurance is designed to protect small and medium size businesses from the loss of a key employee or business owner due to a disability or illness.  Typically these types of policies will reimburse a business for actual expenses that occur during a period of disability.  Regular expenses that could be covered under a BOE policy include replacement salary expense, employee salaries, rent, utility bills and property insurance premiums to name a few.

One thing to keep in mind is that key person life insurance and business overhead expense disability insurance are designed specifically to protect a business due to death or disability.  These policies are not a substitute for personal life and disability insurance that are designed to protect an individual’s family from these unfortunate events.  Contact your Benjamin F. Edwards financial advisor for a discussion of all your individual and business life and disability insurance needs.

* Please consult with your tax professional for guidance tailored to your specific situation.