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Retain Top Talent With This Unexpected Employee Benefit

April 23, 2019

5 min read

Key Person life insurance rewards your business and your top performer.


What benefits do you offer top employees? Higher salaries? More time off? Profit-sharing?

Those are all great rewards for your best performers. Have you ever used life insurance to convince an employee to stay? Believe it or not, Key Person life insurance can be used as an employee benefit to retain top talent.



  1. Key Person Life Insurance Defined

  2. How This Coverage Benefits Your Business

  3. How Key Person Life Insurance Benefits Your Employees

  4. How Much Coverage Do You Need?

  5. An Employee Death Could Affect Your Credit

  6. Considerations for Finding a Replacement

  7. Discuss This With the Employee Before Purchasing


Key Person Life Insurance Defined
Key Person life insurance is designed to protect your business when a top employee or owner dies. When this happens, the business receives a cash benefit to take care of business-related needs caused by the death.

Why Businesses Need This Coverage

Your top performer knows every process and inspires loyalty from your team and your customers. If this employee suddenly passes away, it could cause disruptions to production, sales, and your credit rating.

How do you prevent financial setbacks if this person is no longer there?

Key Person life insurance can provide the means to stabilize your business and help it survive the loss of a top employee. With this coverage, you’ll have the liquidity of funds to hire a first-rate replacement before quality and service slip.

How Key Person Life Insurance Benefits Your Employees
Depending on which Key Person life insurance plan you choose, you could reward your best employee so that he or she might not consider leaving for another job.

Some policies build cash value for the future that can be distributed to the employee as a part of a retirement plan and as an incentive for staying with the business.

How Much Coverage Do You Need?
How much is enough? What factors should be considered?
There is no “one size fits all” answer to these questions.

The first factor to consider is how the death of the key person will affect your business’s cash flow. That individual, whether it is the owner or another employee, has a wealth of knowledge, skill, and experience. They’ve built relationships with customers and other employees and have created a reputation for success. If that individual is suddenly gone, you could see negative effects on sales, production, or even customer service that could impact revenue and cash flow.

Keep all of that in mind as you answer these important questions:

  • To what extent do you believe sales or production will be disrupted by the death of this key individual?
  • How long do you expect the disruption to last?
  • Will any part of the life insurance benefit go to the employee's family and what are their needs?

Top performers command top salaries, which means they can afford nicer things financially:

  • Bigger houses = Higher mortgages
  • Nicer cars = Larger car payments
  • Better education for their kids = More expensive tuition

If that essential employee retires with your business and is insured by a plan that builds cash value, it would be nice for their family to have help paying off debts in the future. Collaborate with your top employee and your Pekin Insurance agent to find a coverage amount that works.

An Employee Death Could Affect Your Credit
An employee’s death can harm the business’s credit outlook. If cash flow is affected, you could see uncertainty from lenders and suppliers. The business owner might be asked to accelerate payments or fully pay off loans.
Ask yourself:

  • Will the loss of this key employee affect your company’s ability to secure credit?
  • Could existing loan repayment terms change?
  • Could credit terms from suppliers be altered?
  • Is there a specific debt or bank loan that should be repaid on the death of this key employee?


Considerations for Finding a Replacement
It’s not easy to find someone with similar skills and qualifications as the deceased employee or owner. In a small business, it’s going to be particularly difficult and may take a considerable amount of time.
Find answers to these questions:

  • How much will you have to spend to find, attract, hire, and train a replacement?
  • Will a temporary replacement be needed while you attempt to find a permanent replacement?
  • How will the loss of this key employee affect the other employees? Will the uncertainty regarding the future of the business cause any of them to leave?
  • Will you have to pay more for a replacement with the same skills as your key person?

Discuss This With the Employee Before Purchasing
Before you purchase Key Person coverage, you have to discuss the plan with the employee you want to insure. If you don’t have that discussion, the employee will hear from the insurance company first because consent must be given for the policy to go into effect.

That’s not a good look for your business, and it comes across as underhanded.

Key Person life insurance can protect your business from a major disruption and help your top employee at retirement. Talk to your local Pekin Insurance agent about the possibilities of Key Person coverage.

Contact Valentine Insurance today!

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