DAVID HOORY, CLF®, LUTCF®
IF YOU HAVE EMPLOYEES, YOU KNOW FIRSTHAND THAT THE LOSS OF A KEY EMPLOYEE CAN HAVE A PROFOUND IMPACT ON BUSINESS OPERATIONS. WHEN AN EMPLOYEE LEAVES, CUSTOMERS WHO DEALT DIRECTLY WITH THAT PERSON MAY WORRY ABOUT RECEIVING THEIR GOODS OR SERVICES IN A TIMELY MANNER; SUPPLIERS MAY BE CONCERNED ABOUT GETTING PAID FOR THEIR DELIVERIES; AND STAFF MORALE CAN ALSO TAKE A DIP AS REMAINING EMPLOYEES WORRY ABOUT ASSUMING A HEAVIER WORKLOAD.
That’s why it’s important to make sure that your business is prepared to deal with the unexpected departure of a key employee which usually happens for one of three reasons: the employee chooses to resign, the employee becomes disabled, or he or she passes away.
While life insurance cannot protect against employees choosing to leave, it is often used as a tool to help incentivize them to stay; deferred compensation plans are powerful vehicles for doing just this. Deferred compensation arrangements allow you to provide retirement income to select employees. The way it works is that you and the selected employee enter a contract that specifies the compensation you will pay out to him or her in the future. Since you may not set up a specific reserve fund in which a participant has a vested right, a life insurance policy is uniquely suited to informally finance a deferred compensation plan. The future of your business depends on attracting and retaining the right talent with the right tools.
It’s also important to protect your business against the economic losses it may face as the result of a top employee’s death with the use of key person insurance. The way it works is that the business applies for and becomes the owner and beneficiary of a life insurance policy covering the key employee. If the insured employee dies, the business receives the policy proceeds.
Deferred compensation and key employee insurance are benefits that are related exclusively to your top employees, but New York Life also has options that you can offer your entire team to help cultivate a rewarding work environment, such as life and disability insurance. These benefits can provide employees and their families peace of mind and added financial security, which can go a long way toward attracting and retaining valuable employees.
As a business owner, you’ve worked hard to get where you are today. Having a contingency in place will allow you to focus on making the best possible decisions for the future of your business.
This educational third-party article is provided as a courtesy by David Hoory, CLF®, LUTCF®, Managing Partner, Brooklyn General Office, New York Life Insurance Company. To learn more about the information or topics discussed, please contact David Hoory at (718) 486-4601 or email dhoory@newyorklife.com.
