As important as everyone is to your company, it is usually evident that a few people are especially critical to the ongoing success of the business. There are strategies that can help protect your key employees and the business.

How do you value a key employee?

Employee Factors:

• Industry experience.
• Degree of specialized knowledge.
• Percent ownership in the business.
• Consequences of death or disability.

Business Factors:

• Technical nature of the business.
• Responsibility level.

Key Person Disability Insurance
With key person disability insurance, the business can protect itself from the financial effects that would arise if a key employee were to become disabled for an extended period of time.

The key person disability policy is owned by the business, which pays the premiums. Because the business is the beneficiary, the premiums are not tax deductible. In the event of a key person's disability, the business receives a tax-free benefit.

Key Person Life Insurance
A bigger threat than a long-term disability of a key employee would be that individual's death.

A key person life insurance policy is owned by the business and it insures the life of a valuable employee for the benefit of the business. The business pays the premiums, owns the policy, and is the beneficiary. Premiums are not deductible, but proceeds from the policy upon the death of the key employee are free of income tax for the business.

Key Person Selective Benefit Plans
As additional benefits for key employees, employers may want to consider deferred bonus plans, stock options, split-dollar insurance, supplemental executive retirement plans, or disability wage continued programs.