Protecting Your Business’ Future with Key Person Insurance
In any successful business, there are a few people whose knowledge, leadership, or customer relationships are vital to ongoing operations. Losing one of them—whether unexpectedly or through retirement—can seriously disrupt profitability or even threaten the survival of the company. That’s where Key Person Insurance comes in.
And when it comes to building in both protection and long-term value, Indexed Universal Life (IUL) insurance is a powerful tool for funding Key Person coverage.
What Is Key Person Insurance?
Key Person Insurance is a life insurance policy that a business purchases on the life of a crucial employee (often a founder, top executive, or lead salesperson). The business is the owner, premium payer, and beneficiary of the policy.
If the insured key person passes away, the policy pays a death benefit to the company, helping to:
- Cover the cost of recruiting and training a replacement
- Offset lost revenue
- Provide reassurance to lenders, investors, and clients
- Fund a buy-sell agreement or business transition
Why Use an IUL for Key Person Insurance?
An Indexed Universal Life policy adds a layer of flexibility and cash value accumulation not typically found in term life policies. Here’s how it benefits a business:
✅ 1. Lifelong Coverage
Unlike term policies, an IUL provides permanent coverage. This is especially useful for long-term succession planning or retaining key leadership.
✅ 2. Cash Value Growth
The IUL accumulates tax-deferred cash value, which is tied to the performance of a market index (like the S&P 500), with zero exposure to market losses. Over time, this cash value can be accessed by the business via loans or withdrawals.
✅ 3. Tax-Advantaged Withdrawals
If structured properly, the business can access the policy’s cash value tax-free, which could be used to:
- Fund executive bonuses or deferred compensation
- Offset future business risks
- Finance buyout options in a succession plan
✅ 4. Executive Retention Tool
IUL policies can double as part of a Golden Handcuff strategy. The business could transfer the policy or its cash value to the key person at retirement or after hitting certain milestones, rewarding loyalty and reducing turnover risk.
Real-World Example:
A tech company insures its Chief Technology Officer with a $1,000,000 IUL policy. The company pays $20,000 per year in premiums. After 15 years, the policy has built up $250,000 in cash value. The CTO retires, and the company uses a portion of the cash value to fund a signing bonus for the next CTO. The remaining value continues to grow and protects the business if needed in the future.
Is an IUL Right for Your Business?
If your business relies heavily on one or two individuals, Key Person Insurance funded by an IUL may be one of the smartest strategic moves you can make. It offers:
- Protection from sudden loss
- Flexibility for future planning
- A tax-efficient asset on your balance sheet
It’s not just insurance—it’s a financial strategy.
Want to learn how an IUL strategy could fit your business?
Book a free consultation today and let’s protect what makes your business great.
