There is an old saying that a business’ biggest assets are its people.
That has never been more true than it is today given the labor shortage in the trucking industry. According to the American Trucking Associations, there is a shortage of 80,000 drivers in the United States. In addition to drivers, many firms are competing to retain and attract officers of the company, many of whom are approaching retirement.
Despite these challenges, a firm may have excellent driver and officer retention. There is still a risk that one of more of these people either dies or becomes permanently disabled. The firm may have significant losses of revenue and time from one of these two events.
Moreover, if one of those employees has equity in the firm (such as a business partner), the firm may have to pay out the value of those shares at market price to their estate. If this were to happen, a fleet would have three choices from which to draw payments: company money, a loan or insurance proceeds.
Insurance proceeds, generally through a Key Person – or commonly called a Key Man – policy is by far the most efficient method of indemnification. By pooling the risk with other policy owners, the firm can cover this risk for pennies on the dollar. Key person insurance is a life insurance policy purchased by the company on an owner, a key executive, or any individual critical to the business.
The products most often deployed are:
Term Life, which covers a named insured for the smallest premium with the highest death benefit. Unfortunately, the coverage only lasts for a set period.
Universal Life, which covers a named insured for a moderate amount of premium with a moderate death benefit relative to the premium. The coverage lasts for life as long as the internal costs of insurance are hemmed in by gains in the cash value.
Whole Life, which covers a named insured for the highest amount of premium with a relatively low death benefit. While this option is seen as the most expensive, the cash values are guaranteed and are not subject to internal costs of insurance.
Disability Insurance, which covers a named insured's income and business overhead should the employee become permanently disabled.
Finally, there's Long Term Care Insurance, which covers a named insured's home health, assisted living and/or nursing home expenses.
If you were looking for advice on these products, reach out to your financial advisor or insurance agent.
While all advisors and agents who deploy these products are licensed in their resident state, make sure they have competency and experience with Key Person Planning.
John Scarborough is a financial advisor and can be reached at John.Scarborough@LPL.com.