As one author put it: some employees are profit-centers and others are loss-centers. That might be a bit reductive, but the fact of the matter is that some employees are more valuable to you than others.
When some leave, it can register as a minor headache or even a huge relief. While if others leave, it can be absolutely devastating, leaving you wondering how you can even go on in business.
Sometimes our businesses become precariously dependent on one or two employees with entirely unique skill sets. They are the only ones who know how to work a particular machine, or piece of technology, or have highly valued social connections.
We do our best to show them our appreciation, but the thought of them walking away keeps us up at night. What if your competitors discover their talents and entice them to leave? What if they just want to leave? What would we do without them?
We can try to keep throwing money at them, but of course there’s a limit there. And what if your competitor can throw a little more?
We can add benefits. But most benefits we give to one employee, we are required to give to all employees. And again, not all employees are the same.
Many Small Business Owners are turning to what is often referred to as “Golden Handcuffs”. What if you could tell your prized employee that if they stay with you 25 years, they’ll receive their income for the rest of their life? Oh, and it won’t be taxed (if we follow the rules)? Oh, and there’s permanant Life Insurance? Oh, and this comes from a pile of money that will be theirs to do with as they like?
It is Key-Person Life Insurance, and you can pick and choose which employees to give it to.
To structure this, we would use an Indexed Universal Life Insurance policy. This produces a Cash Value that participates in the upside of the market while having a floor of 0% preventing it from sharing in the market’s losses. It builds up a pile of money that we can structure like a tax-free pension in their retirement.
The benefit to the business owner is that they begin with full ownership of the policy. And ownership is only transferred over time through vesting. We could schedule that where they get no ownership of it for the first ten years, and then they slowly gain ownership after that.
This way, if they leave, you get access to the Surrender Value of policy. All is not lost. And, God forbid they pass away… Well, if you have your business as the beneficiary you have funds to float you until you can replace their unique talents, you have funds to entice the next hire, and you have enough funds to show up and bless your lost employee’s family with a significant gift at the funeral.
Oh, and the premium you pay can be written off as an expense.
It might not be for every employee, but most small business owners know exactly which ones absolutely need this
