Life Insurance for Executives and Business Professionals

executive life insurance

Growing and nurturing a startup into a big business can take months, if not years. Also, a business that took years to build can end in a blink of an eye. Any executive with a handful of experience is a gem to a company, and especially if they are responsible for most of the success of the business.

Your competitors will be eyeing them, and if there is anything they can do to win them to their side, they would not hesitate to do it. It is the responsibility of business owners to motivate and retain such individuals in their companies. But also protect themselves against a potential loss that can come in the form of an untimely death.

When compared to other normal employee life insurance plans, executive plans offer higher compensations. For instance, group life insurance plans are limited and have restrictions when compared to executive life insurance plans that are more flexible. High-value insurance coverage can be set up for key executive individuals in the company. This comes with many advantages like tax-deferred cash value accumulations that can help support the lifestyle of their loved ones once they are deceased or be used as retirement plans for these executives.

Additionally, level premiums are other advantages they have over other standard policies. 

Executive life insurance plans indicate the value placed on certain individuals in the business and act as appreciation for their unmatched services to the company. Such is a powerful incentive to recruit and protection to retain them in your business.

When Executives Need Life Insurance

As a business owner, you need to know when to set up executive life insurance for your employees. Which one of your employees needs such benefits and how much should it be? It might not be any of your employees who might need it but you, if you are the owner of the business. 

The last thing you want is to leave your loved ones stranded with a heavy financial burden from debts from the business or other financial responsibilities related to it. This may be the only source of income for your family members, and by protecting its future, you will also be protecting the future of your loved ones.

Also, from an employee’s standpoint, it is important to know what goes into having an executive life insurance plan in place. While most of the policy’s responsibilities fall on the employee, the employer should also have an understanding of how it works.

That said, the following are different scenarios when executives may need life insurance

Buy-Sell Agreement Planning

Executives will need life insurance for succession planning. If one of the executives or shareholders dies, then a life insurance policy will enable the other executives to buy the deceased’s business interests, depending on the kind of agreement put in place. 

Key Person Life/Disability Planning

If a key person gets disabled, it might limit them from carrying out their duties as expected. In a worst-case scenario, the death of a key person may completely cripple the business. Replacing a key person can be expensive, and the business may not afford it at that time considering the fact that the death was unforeseen. Executive life insurance is used for planning for such turns of events. This way, the business will not suffer any financial setback or get terminated. 

Executive Bonus Plans

Executive bonus plans are also a great way of retaining top employees in the company. They are supplemented bonuses where all the policy rights belong to the employee who is the owner of the plan. Also, the employee, who is insured by the policy, usually has access to the funds and is responsible for determining the beneficiary of the plan. 

For more benefits, a double bonus can be structured to compensate the individual for the executive bonus plan which is taxable. The business owner can choose to use the executive bonus as an incentive and restrict access to the cash value by the employee until a future date.  

Business Overhead Expense Policies

While it is not obvious what might happen in the future, any business will need to stash away some cash for surprises. Most executive life insurance plans do accumulate cash value. The owner can use this to cover for future overhead expenses that the business might incur.

Why Executive Life Insurance is Important

Losing a key person in business may seem minor and as easy as getting a replacement as soon as possible. But the outcome may be extremely detrimental to the business, and in fact, some research has shown that it is one of the major reasons why most small businesses and startups go bankrupt. 

The death of any key executive in the company cannot be predicted, but the business owner can stay prepared for such an event by setting up an executive life insurance plan. It can be hard to recover from the loss of an executive employee especially if they were a major contributor to the business. The life insurance proceeds will make hiring a new employee easy and can also be used to recover losses incurred during the transition process if any. 

Even for a business owner who does not wish to continue with the business, the life insurance proceeds can be used to cater to the investor and closing costs, or even enable the provision of severance packages for employees. 

The amount to be rewarded should be predetermined, and agreements can be added to the plan to help strengthen the loyalty of employees. The insurance benefits can be used to fund deferred compensation programs that the company executives can use to supplement their retirement plans.

To boot, an executive life insurance plan can also help you qualify for a tax deduction.

How much to get 

The income of the employee plays a major role in determining the amount of coverage needed for the executive life insurance policy. Also, if it is difficult to replace the individual, the death benefit should also be high to cover the costs of the replacement. Whether long or short, the term of the insurance policy will also depend on how long the employment lasts for, and also helps to determine how much coverage is needed.

Other factors that determine the cost of an executive life insurance policy include the sex of the individual, age, and health, as well as the size and the nature of the business. Also, financial needs will vary depending on the individual hence there is no specific figure for the right amount of coverage. So, it is important to consult with a seasoned agent to help figure out how much benefit will be enough depending on your future needs.

Best Insurance Policies for Executives

Just like with the standard insurance plans, executives have different policies to choose from. Life insurance for executives has different classifications, and term life is the most common. It allows the individual to renew their policy after a specific time span, with 5-year term policies being the most popular for key persons. The type of policy you choose should align with your financial needs among other factors of consideration. The following are the best insurance policies for executives across all forms of insurance.

Business Crime Insurance

Fund embezzlement is a major problem for businesses, and business crime insurance policies are used to cover companies in such cases. Forgery and theft are the most common, and a lot of business owners are not aware that commercial property insurance policies cannot be used for such cases. 

Most business owners and managers place a lot of trust in their employees which is one of the reasons why embezzlement is a widespread issue. In other cases, most businesses lack sufficient controls meant to keep untrustworthy employees in check. While cyberbullying is increasingly significant, most business crime insurance plans are meant to cover issues ranging from computer fraud, alteration of checks or forgery, embezzlement of funds by employees, credit card fraud, and wire transfer fraud. 

Directors & Officers Liability Insurance

It is also abbreviated as D&O liability insurance and is meant for businesses with publicly-traded stock. Company directors and officers can get sued by their competitors for different reasons like trade secret violations among other unfair trade practices. Also, creditors, suppliers, and customers can sue company managers, but a liability policy cannot be used for such coverage. Directors and officers coverage can provide a means of protection for manager’s personal liability and the entity’s obligations to indemnify its key managers for the cost of investigations and legal defense as well as settlements offered or judgments awarded for claims.

Employment Practices Liability Insurance

Employment practices liability insurance plans are suitable for both new and established businesses. The executives of the company and the entity as a whole are protected from current and former employees as well as independent contractors and applicants. 

Such claims may eat up the business’s finances and as such business owners use the liability coverage to pay for legal defense fees and investigation costs.

Fiduciary Liability Insurance

This type of insurance is meant to protect executives and companies against potential claims from current or former plan participants that are based on allegations of mismanagement, and misappropriation of plan funds.

Both company and individual assets can be protected through the fiduciary liability insurance as the policy is used to legal defense and investigation costs. 

Key Executive Life Insurance

If a particular employee is a driving force for your business, it is important to set up key executive life insurance for them. Losing a key person in the company may have a lot of negative implications for the business, or even worse, lead to the termination of the company.

Key executive life insurance prepares the business owner for any unexpected death of an executive in the company. 

While the policy is set up for an individual key person, all responsibilities and ownership fall to the business owner. Proceeds from the policy can be used in the transition phase, which includes sourcing and hiring a replacement. 

Disability Insurance for Executives

While a disability directly affects the financial status of an executive, it can also take a toll on the company’s general well-being. This is where disability insurance comes in handy. It is used as a protection for both the executives of the company and the business entity if an executive of the company cannot perform his/her duties due to disability. 

Disability insurance policies can also be set up to pay for rehabilitation costs and to the company’s advantage, it can be combined with key person life insurance policies. By combining the two, a company will be able to pay for all the costs used to cover for the disabled person’s expenses without taking a plunge in the business’s finances. 

When to get your own, when to get through the company

While a business may offer life insurance for executives, the benefits may not be sufficient enough to cover those individuals with huge financial responsibilities. A good rule of thumb is to first figure out how much coverage you need for your future financial needs. This way, you can easily determine how much coverage you will need.

If your financial needs surpass the expected benefits from what the business is paying for you, then you might need to get an extra policy for yourself. You can get your own executive life insurance policy if you plan on using the proceeds as your retirement plan. The benefits from the policy don’t necessarily have to be used to cushion a future financial hardship, it can also be used as a means of investment. 

Bottom Line

More businesses need to understand the benefits of life insurance for executives, which they can use to protect the future of their employees and their businesses altogether. Every business has a key person who is indispensable, but unavoidable circumstances like the death of such people can completely change everything for the worst. As a business owner, you will need an executive life insurance plan to keep the business steady up to the end and to stay ahead of competitors. 

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