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Can key employees disable a business?

Lloyd Lofton

In today’s economy this is becoming the most important question a small business can ask. And they may need to determine the answer to this question sooner rather than later.

“Take away all my factories and my equipment. Take away my wealth… But leave me with my key people and in a short time I’ll have it all back again.”

– Attributed to Andrew Carnegie

Many business owners define “key” people based on:

  • High Salary – High value put on employee.
  • Decision-making power – Control business direction.
  • Frequent direct client contact – Substantial power base: the relationships that business success depends on.
  • Crucial position – Product development, production, technology or sales.
  • Special talents – Difficult to replace.
  • And of course, in the vast majority of businesses, the owner who is involved in day-to-day operations may be the most important employee of all.

What impact would their loss have on the business? Perhaps put a different way, the ways in which they add value would be the nature of the loss suffered. What would be the economic impact if key employees suffer a disability that prevents them from working?

Employees that offer unique contributions desire unique rewards. However, individual benefits will have an even greater impact on the high performer. The truth is that bonuses are expected, and when paid are quickly spent and forgotten. Benefits, on the other hand, can last a lifetime.

This can be accomplished by using strategies that are not directly regulated by the federal government and fall outside the auspices of ERISA. Unlike IRAs or 401k programs, these strategies don’t limit the level of funding.

Disability Benefit Plan

This type of plan allows the small business owner to pay a bonus to an employee that is used to fund valuable insurance coverage for them and their family, and is a tax deduction for the business

  • Your small business client’s key employee receives much-needed disability insurance coverage at little or no cost
  • The client can pick and choose to whom this benefit would be offered and at what level
  • No administrative or government reporting costs

The employer pays a bonus to the employee. The bonus is deductibleto the employer and taxable to the employee. The employee maintains all the rights associated with owning a disability benefit.

What will happen to the business if the partner becomes disabled?

Today, there are cost-effective ways to protect a business from these events that threaten their long-term profitability. What will happen to the business if one of the small business owners were to become disabled?

If a business owner is unable fulfill their management responsibilities, the remaining disabled owner’s family, or partners and shareholders, arrive at a serious crossroads in the life of the business.

What is the next step?

Contact your business owner clients or those who hold positions with their companies that are influential. You will need to acquire additional details to begin designing a custom plan for them, one that does the best job of solving the unique needs of small business owners. If not you, then who will help them?

Lloyd Lofton L.U.T.C. is the President of SIMA (Senior Insurance Marketing Association) and V.P. Sales- COO of American Eagle Financial Services. He can be reached at [email protected] or 678-426-1506.



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