Determining the need for key person life insurance

Guest editorial
By Scott Carver, Advisor, JD Fulwiler & Co. Insurance

This article was published in the January 2018 edition of NTEA News.

Every business likely has at least one key employee who is integral to its success. This individual typically has specialized skills, expertise, knowledge or valuable customer relationships. If your company relies on a key employee, your operation would probably be negatively impacted by the loss of that individual. Have you ever considered how much time or money it would cost to replace the knowledge and expertise if this staff member unexpectedly leaves your organization?

Your business can protect itself with a key person life insurance policy — a simple, efficient way to provide a company with the necessary funds to deal with the loss of a key employee and recruit and train a replacement.

The nuts and bolts of this policy are fairly simple. The business pays the premium and is the policy owner and beneficiary. In the event of a key employee’s death, the company generally receives the death benefit proceeds income tax-free. These funds can be used to recruit, hire and train a replacement or to offset lost revenue during the transition. Premiums are based on several factors, including the key employee’s age, gender, tobacco use, physical condition, health history and amount of coverage. Businesses would purchase a separate policy for each key employee.

Either a low-cost term policy or a permanent life insurance policy can be used. If a permanent policy is chosen, the cash value would appear as an asset on the organization’s balance sheet. Additionally, the policy cash value can be used in the event of a financial emergency or other business need.

Identifying key employees
Consider the following when determining if your business has key employees:

  • Technical expertise
  • Unique skills or training
  • Reputation and leadership ability
  • Decision-making responsibilities
  • Exclusive ties to customers and suppliers
  • Business development and client relationships

It is typically extremely time-consuming, difficult and expensive to replace staff members with these traits. Key person insurance can provide much-needed funds and liquidity to help the business function in the event of a key employee’s death. Your insurance advisor can assist you in determining the need for this policy and putting the right amount of coverage in place.

As NTEA’s preferred insurance agency, JD Fulwiler developed the Protection Plus program to provide the industry with underwriting, risk assessment and loss prevention services. JD Fulwiler will shop among many top insurance carriers with which it does business to find a coverage solution that best meets your needs. Learn more about this program at or call 800-441-6832.