Living Benefits for Business Owners: Protecting Key Employees
Business owners understand the importance of protecting their company’s financial future. While many focus on tools like key person insurance or buy-sell agreements, one often overlooked strategy is using life insurance with living benefits to protect key employees. These policies can provide real-time support if a vital team member experiences a serious illness or health crisis. Here's how living benefits can strengthen your business’s continuity plan.
What Are Living Benefits?
Living benefits allow the insured individual to access part of their life insurance policy’s death benefit while they’re still alive. These benefits are typically triggered by a critical illness, chronic condition, or terminal diagnosis. The funds can be used for anything—treatment, caregiving, business operations, or covering temporary staffing.
Why Living Benefits Matter for Business Owners
Key employees often hold institutional knowledge, leadership roles, or client relationships that are difficult to replace. If a key employee becomes critically or chronically ill, their absence can disrupt operations and revenue. A policy with living benefits can help mitigate the risk.
Use Cases for Business Owners
1. Key Person Protection
If a key executive suffers a qualifying illness, living benefits can help cover:
- Temporary replacement costs
- Lost revenue during transition
- Contract obligations or client management gaps
2. Business Continuity Planning
Living benefits provide liquidity to keep the business running smoothly if a critical team member is out of commission. This can be crucial during a crisis when fast decision-making and cash flow are essential.
3. Enhancing Executive Benefit Packages
Offering life insurance with living benefits as part of an executive compensation plan shows commitment to employee well-being. It can improve retention and recruitment while protecting both the employee and the company.
4. Funding Buy-Sell Agreements
For partners or co-owners, a policy with living benefits can help fund buy-sell agreements not only upon death but also in the event of serious illness or incapacitation.
What to Consider When Insuring Key Employees
- Policy Ownership: The business typically owns the policy and is the beneficiary. If living benefits are used, the business receives the funds.
- Coverage Amount: Calculate potential revenue loss, replacement costs, and financial disruption caused by the loss of that employee.
- Underwriting Requirements: Some policies may require medical exams or health disclosures. It’s best to apply while the insured is healthy.
- Living Benefit Riders: Verify that the policy includes critical, chronic, and terminal illness coverage. Some policies may offer only terminal illness riders by default.
Questions to Ask Your Agent
- What conditions are covered under the living benefits rider?
- How does a living benefits payout impact the death benefit?
- Are these benefits taxable to the business?
- How quickly are funds disbursed once a claim is approved?
Final Thought
For business owners, protecting your company means preparing for both the expected and the unexpected. Life insurance with living benefits adds another layer of security—not just for your team members, but for your operations and bottom line. Whether used for key person coverage or as part of an executive benefit strategy, these policies offer flexibility, financial protection, and peace of mind in times of uncertainty.