key person sample ppt

Key Person Insurance

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Caveat

This presentation is for informational purposes only. The speakers and presenters appearing at this meeting are solely responsible for the content of their presentations and may not necessarily represent the opinions of Aviva or its subsidiary companies. Neither Aviva nor any of its Agents or Employees are in the business of giving tax, legal or accounting advice. Attendees should consult with their own professional advisors to determine the appropriateness of any course of action. In order to comply with certain U.S. Treasury regulations, please be advised of the following: Unless expressly stated otherwise, any U.S. Federal tax advice contained in these materials is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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A company’s most valuable assets

If one of these key employees is lost, your

business may experience financial

difficulties.

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Key Person Insurance

“Take away my factories, my plants; take away my railroads, my ships, my transportation; take away my money; strip me of all of these, but leave me my men, and in two or three years I will have them all again.”

- Andrew Carnegie

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Ask Yourself...

• Who do you rely on the most?

• Which employee would you fire last?

• Who runs the business when you are gone?

• Who is in charge of sales?

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Ask Yourself...

• Who makes the money for the company?• Who is in charge of production?• Who is going to replace you when you

retire?• Who is in charge of research?• Who finances the business?• Who brings in the most revenue?

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Examples of Key People

• Has managerial responsibility

• Is responsible for sales• Is connected with

creditors

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Examples of Key People

• Is responsible for bank financing• Is responsible for manufacturing• Has designed a product• Has connections with regulators to get

approvals• Frequently is the highest paid employee• Provides special skills unique to the

business

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Would a Loss of a Key Person?

• Create a void you couldn’t fill from within?

• Interrupt the normalflow of activities?

• Affect financialcontrol andgeneral management?

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Would a Loss of a Key Person?

• Shrink your customer base?

• Mean losing aspecialized skill?

• Halt or delayspecial projects?

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When a Business Loses a Key Person

• Finding a replacement becomes necessary

• Business earnings are reduced

• Employees become concerned

• Customers shop around• Financing is strained

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How To Place Value on Key Employees?

• Determine how long it will take to find andtrain a replacement– Is special training required?– Are the skills readily available?– If a replacement is found, are additional salary and bonuses required to attract him/ her?

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How To Place Value on Key Employees?

• Estimate the amount of lost earnings if a replacement is not identified quickly.– Lost earnings due to lower production– Lost earnings due to

lost sales– Lost earnings due to

operational inefficiencies

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Options To Funding Key Person

• Sinking fund/Savings account

• Current profits• Life insurance

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Why Fund With Life Insurance?

• Accumulates tax-deferred cash values

• Security• Income tax-free death

proceeds• Can provide retirement

benefits• Cash values are assets of

the company

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How Key Person Life Insurance Works

• The employer owns and is the beneficiary of insurance on the key employee’s life

• Employee must acknowledge employer’s ownership of the insurance by signingNotice and Consent for Employer Owned Life Insurance form (IRS requirement).

• The employer pays the premium to the life insurance company

• If the employee dies, policy proceeds are paid to the employer

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How Key Person Life Insurance Works

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What if…

• A Key Person leaves the company?

– Maintain cash value as an asset on the books

– Surrender the policy for its cash value

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What if…

• A Key Person retires?

– The cash value can be used to supplement the key person’s retirement income

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Remember

Three steps to protecting your business:1. Identify your key-employees 2. Value the potential loss of those key employees3. Implement a plan to protect your business

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Remember

Every company has employees who are key to the financial success of the organization. The loss of a key employee could jeopardize the

financial future of the business.

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Act Now!

• Take the time to review your current situation• Analyze the solutions• Talk to your Aviva Life and Annuity

professional

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Questions