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Background

To the small corporation, the loss of key employees can create many problems. After all, the small corporation is most likely to suffer the most from the loss of key employees, as larger companies typically have management depth and sufficient resources to overcome such a loss. Several problems may arise within the small corporation; over and above the loss of the expertise of the key employee is the disruption to the business itself, which might very well have a significant effect on the efficiency and the overall viability of the business. The general solution to this dilemma is insurance. Considering only the asset value of the key person, it makes complete sense to insure this value. The loss of this asset can affect the ability of the business to be profitable and sustainable.

Very simply, the employer purchases a life insurance policy on the life of its employee. The employer is the owner, and names itself as the beneficiary. The purpose of this coverage is solely to replace a key asset, whatever business structure (partnership, LLC, etc.) is in place. Even a sole proprietorship may wish to insure the life of some key employee. The reverse can also happen: The employee can purchase coverage and insure the life of the sole-proprietor/employer, or the lives of partners or shareholders. While rare, the process is the same. [back] [next]