Key-person insurance benefits are often used to buy out the insured person's shares or interest in the company. Buy-sell agreements, which require the deceased executive's estate to sell its stock to the remaining shareholders, legally facilitate this process. Proceeds from key-person insurance can also be used to recruit replacement management.
The following form contains some critical questions you should ask your agent or broker when considering this type of insurance.
South Dakota Checklist — Key Employee Life Insurance: An Overview Key employee life insurance is a vital component of any comprehensive business insurance plan in South Dakota. It is designed to safeguard businesses against the financial loss resulting from the unfortunate demise of a key employee. This essential insurance coverage ensures that businesses can cope with the potential loss of key personnel and continue their operations smoothly during challenging times. Different Types of Key Employee Life Insurance in South Dakota: 1. Traditional Key Employee Life Insurance: Traditional key employee life insurance policies offer a death benefit to the business if the key employee covered under the policy passes away. The coverage amount is determined based on the key employee's importance to the business and their potential financial impact on the company's operations. This benefit helps the business recover from significant financial setbacks and provides peace of mind. 2. Key Employee Term Life Insurance: Key employee term life insurance is a type of policy that provides coverage for a specific term, typically ranging from 5 to 30 years. It offers a death benefit if the key employee dies during the policy term. This type of insurance is suitable for businesses that need coverage for a limited period or have specific reasons for a temporary insurance solution. 3. Key Employee Permanent Life Insurance: Key employee permanent life insurance is a policy that offers lifetime coverage, unlike term life insurance. It not only provides a death benefit but also accumulates cash value over time. This cash value can be accessed, and if structured correctly, it can be used to supplement the key employee's retirement income or for business-related purposes during their lifetime. 4. Key Employee Whole Life Insurance: Key employee whole life insurance is a type of permanent life insurance that combines a death benefit with a cash value component. It offers guarantees like level premiums, death benefit, and cash value accumulation. This type of coverage provides long-term financial security for businesses and allows them to use the cash value for various purposes such as funding a buy-sell agreement or business expansion. 5. Key Employee Universal Life Insurance: Key employee universal life insurance is a flexible form of permanent life insurance that provides both a death benefit and a cash value component. It allows policyholders to adjust their premium payments and death benefit amount over time to accommodate changing business needs. This type of insurance gives businesses the freedom to adapt their coverage as the key employee's role evolves. 6. Key Employee Buy-Sell Life Insurance: Key employee buy-sell life insurance is a specialized policy used in business succession planning. It enables business owners or shareholders to buy the key employee's interests or shares, ensuring a smooth transition of ownership upon their death. The proceeds from this policy can be used to fund the purchase, safeguarding the business's continuity and preventing disruption during a transfer of ownership. In conclusion, South Dakota businesses recognize the importance of key employees and the potential impact their absence can have on the company's operations and financial stability. By understanding the various types of key employee life insurance available, businesses can select the most suitable coverage to protect their interests, secure their future, and ensure uninterrupted growth even in the face of unforeseen events.
