Every business has assets that are protected against loss, such as: buildings, office equipment or vehicles. However, what is often overlooked is probably the most important asset the business has -- its key employees.

Key employees have several characteristics that distinguish them from other employees, including:

• having specialized skills that are critical to the success of the business;
• having a significant client base that might leave the business if the employee were to die.

When a key employee dies, the business needs cash:

• to cover the expense of finding, attracting, and training a new employee;
• to continue the long-range development programs jeopardized by the death of the key employee;
• to assure creditors and customers the business will continue.
   

There are two primary methods of key employee valuation to determine how much life insurance is needed.

• One would be to estimate the cost of finding, hiring, and training a replacement. These costs would include employment agency fees, moving expenses, and the owner's time spent interviewing and training the replacement.
• The second approach is to determine the dollar amount of profit brought to the business each year by the employee and how many years it would take for a replacement employee to perform at the same level of competence.

To be certain the cash will be available when it is needed, life insurance should be considered. The annual premium cost is often a small fraction of the death benefit and death benefit are generally received tax-free.