A person filling out a form titled "Key Person Insurance".

Key Person Insurance: How to Recruit, Retain and Reward Great Talent

By Greg Jizmejian, Insurance Planning Specialist

Business and risk go hand in hand. However, some risks you budget for, and others you insure against. Knowing the difference is essential. What assets of the business are subject to damage or loss? The building? The equipment? These are usually insured for replacement value.

But what about the most valuable assets of the business: the knowledgeable and skilled people who make up the company, especially those we consider key people? This may be an owner with specialized skills, but often it could also be an employee instrumental in the success of the business. It could be a star salesperson, a marketing genius, an IT wiz or the head engineer. The test is that it would be difficult to imagine the business running smoothly without them.

How do business owners attract, retain and reward such key people? Besides being offered a good pay package, today’s employees are looking for vision, value, passion and purpose. They are also looking for a robust benefits package. Beyond the traditional health and dental coverage, these key people often need some customized benefits. Providing a special class of benefits under the group plan and offering higher amounts under the Health Spending Account present a good start. You could also provide access to superior private disability contracts at discounted rates.

We have so far only addressed ways to attract and retain these individuals. What about the risk to the business if this key person is disabled or dies prematurely? How do you insulate your operation against the sudden loss of your key performer?

The company may want to hold a life insurance policy on the key person’s life for an amount to hire a replacement and offset any losses during the transition period. This may be a multiple of salary payable to the company. While the premium is not a deductible expense, any benefit received would be tax free to the company.

To protect against health events, the business can buy a critical illness contract that would pay a lump sum in the event the key person is diagnosed with one of the 25 covered conditions. The big three being heart attack, stroke and cancer. This should be for an amount equal to at least one year of income to hire a replacement while the key person recovers.

There are many ways of structuring these products where there could be some refund of premiums at a future date. It is essential to work with a qualified insurance expert to implement any of these strategies. Besides selecting the right type of coverage, make sure to structure the ownership and beneficiaries correctly.

Contact your Raymond James Advisor to find out how we may help with your unique business needs.


Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. This is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd. (“RJFP”), a subsidiary of Raymond James Ltd., which is not a Member - Canadian Investor Protection Fund. When providing life insurance products, Financial Advisors are acting as Insurance Representatives of RJFP. Raymond James Trust Services are offered by Raymond James Trust (Canada) in the provinces of British Columbia, Alberta, Saskatchewan, and Ontario, and by Raymond James Trust (Québec) Ltd. in the province of Québec. Trust Services are not covered by the Canadian Investor Protection Fund. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.