Key person insurance—Top employees' life insurance

2 coworkers having fun in the office

Key person insurance can be an important part of the way your business hires and retains top talent—one of the biggest challenges for many small business owners. Matching the benefits that larger companies offer can be difficult, so you should prioritize what your business is able to provide and what your employees will value most. Employee life insurance is a benefit that many professionals consider important.

There are a variety of options for group life insurance, and your employees can be given the ability to opt into supplemental life insurance protection via convenient payroll deductions, which New York Life will set up.1 You can also add disability protection, which many employees will value.

In addition, New York Life offers small business solutions to help you attract and retain the kind of employees who will help your business thrive. Key person life insurance, also called key employee life insurance, is one way that business owners can reward and retain their best talent.

You will want to speak with an agent who specializes in helping small businesses. Your agent will be able to outline several strategies that could help you attract, retain and reward key employees. In order to identify the right strategy for you, he or she will ask you about your specific objectives.

The first matter to address is:

  • What is your primary purpose?
  • Is it to attract quality new employees?
  • To retain the key employees you already have?
  • To reward your top performers with incentives designed only for them?

There are several plans that many businessowners find valuable. The arrangements can be funded with whole life or term insurance.

Stay bonus plan

The employer promises a specific bonus to an employee who stays for an agreed-upon period of time.

  • For stay bonus plans, businesses often purchase whole life policies on valued employees. The cash value in the insurance policy can then be accessed to pay the bonus.2 And in the event of an untimely death, the business is compensated for the loss of a valuable employee.
  • Sometimes term insurance works well with a stay bonus plan. For example, if a business owner is planning to retire (and sell his business) in 10 years, but wants to make sure that his wife will be able to continue the business if something happens to him in the meantime, he could offer generous yearly bonuses to key employees who will stick with the business after his death. In order to pay the bonuses, the business owner would take out a 10-year term policy on his own life. If he survives, the stay bonus money will not be needed. (And term insurance is such a bargain that he will not be out a significant amount of money.) But if he doesn’t survive, his widow will have ample funds to pay the bonuses.

162 Executive bonus plan

The employer gives the employee a yearly bonus that is used to purchase and pay premiums on a whole life insurance policy that is owned by the employee.

Supplemental executive retirement plan

The employer promises an additional retirement benefit to a key employee, usually in return for not leaving before a certain date. It can be financed by purchasing a whole life policy (which accumulates cash value).

New York Life gives your business more than just insurance coverage.

New York Life provides professional support whenever you or your employees need it, backed by over 175 years of proven financial strength and a track record of helping small businesses succeed.3 Connect with a New York Life financial professional today to learn more about our small-business insurance solutions.

Note, neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.

1This program is not intended to be subject to the Employee Retirement Income Security Act of 1974 (ERISA). The employer does not contribute to or endorse the program. Employee participation is completely voluntary.
2Accessing cash value will reduce death benefit and available cash surrender value.
3New York Life has received the highest financial strength ratings currently awarded to any insurer by Standard & Poor’s (AA+), A.M. Best (A++), Moody's Investors Service (Aaa), and Fitch (AAA). Source: Individual Third-Party Ratings Reports as of 10/15/20.