Insuring a Key Employee
In a small business, there are often certain employees who have a particularly critical impact on the bottom line. Key person insurance is life or disability income insurance purchased by the business on the life of such an employee. The death benefit paid to the business can help make up for lost sales or earnings, or cover the cost of finding and training a replacement. Your financial advisor can help you determine which employees, if any, are “key” to the business, as well as evaluate how much and what kind of insurance should be purchased.
Executive Retention Plans
Section 162 plans, often called “Executive Bonus Plans,” are a simple way to reward your top people and can offer certain tax advantages.
A Supplemental Executive Retirement Plan (SERP), or Golden Handcuff Plan, is another option used to reward or retain key executives. These plans can be designed to allow the employer to enhance compensation arrangements for their key employees by agreeing to provide future supplemental retirement income in return for reaching a set of predetermined company objectives. Often life and disability income insurance policies are used to help informally fund the payments.
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