Business Owner Solutions System (B.O.S.S.)

More Americans are working later into life. That’s good news on one level: small businesses benefit from deeper experience in their most critical roles. But there’s a flip side. With age comes higher risk of serious injury or even death. The very strength of a seasoned team can also be its vulnerability.

People are the most valuable asset for any business, and every team has a few “key people” whose absence would disrupt operations, stall revenue, or threaten customer relationships. Losing just one of them — a founder, an executive, a high-performer — can push a small business to the brink.

For this reason, one would think that, guarding against such a loss would be paramount. However, among 33 million U.S. small businesses, only 22% carry key person insurance. That gap is costly. Key person insurance is an effective way to help absorb the financial shock of a sudden loss and keep the rest of the team employed and focused.

In short: as your workforce grows older and more valuable, safeguard what you’ve built. Key person insurance turns a single point of failure into a survivable detour, not a dead end.

What is key person insurance?

It’s life insurance a business takes out on its key, irreplaceable people whose absence would put the business at risk. When a key person dies, the policy pays the company directly, buying time and cash to steady the business instead of shutting the doors.

With the payout, you can:

• Bridge cash flow and qualify for a small business loan
• Recruit and onboard a replacement
• Bring in temporary talent to keep work moving
• Fund a merger or acquisition
• Provide severance if winding down is the right call

Side note: Death benefits come from key person life insurance. To protect against a key person’s long-term disability (can’t work but still alive), consider also adding key person disability coverage.

Why consider key person insurance?

Americans are working later in life, and your most experienced people are often your most indispensable and most at risk. The average U.S. worker is 42, and Americans 75+ are the fastest-growing segment of the workforce, more than quadrupling in size since 1965 according to the Pew Research Center. The odds of losing a key employee before retirement are higher than most owners expect, by some estimates, as high as 1 in 16.

Key person insurance helps your business survive the shock. If a critical employee dies — or, with a separate disability rider/policy, can’t work due to illness or injury — the payout buys time and options: stabilize cash flow, recruit a replacement, keep projects moving, or execute a sale or merger.

A quick self-check for business owners:

• What breaks first if your key person is suddenly gone: revenue, operations, relationships?
• How much runway do you have (cash, credit, coverage) to absorb the hit?
• Would a policy let you maintain momentum instead of making layoffs or shutting down?

Protecting one life can protect many. One loss can threaten the business and the livelihoods of every family who depends on it.

How does key person insurance work?

• The business applies for, owns, and pays the premiums on a life insurance policy covering a key employee or owner. With required written consent, the company is also the beneficiary.
• If the insured key person dies, the death benefit is paid to the business. Those funds help stabilize cash flow, cover recruiting and training, hire interim help, or pursue a sale or wind down, whatever keeps your team and customers whole.
• Coverage can be term or permanent, and you can add riders or pair it with separate key person disability or critical illness coverage to address non death scenarios.

Important tax considerations:
• Premiums for key person life insurance are generally not tax deductible.
• Death benefits are typically received income tax free if notice and consent rules are followed. Always confirm with your tax advisor.

Don’t let an unexpected loss sink your business. AIMCOR EIG designs creative, right sized solutions so you can focus on running the business, today and after the unexpected. Talk to us to explore the best fit for your team.

 

Disclaimer: AIMCOR Group, LLC, its subsidiaries, and affiliates, referred to hereafter as the collective “AIMCOR,” do not provide tax, accounting, or legal advice. Information supplied by AIMCOR is general in nature and provided in its capacity as a wholesaler. AIMCOR does not make recommendations to consumers or applicants regarding individual sales or transactions. Information contained herein is not intended for use as investment advice, as it does not consider specific investment objectives or the financial circumstances of any individual. Please consult an appropriately licensed professional before considering any financial or investment transactions.