Triple Protection Plan – An Employee Retention Strategy

Over the years you’ve built a profitable business. You’ve invested your money and time to cultivate your passion. Now it’s time to consider your most valuable business asset. While physical assets — the buildings and equipment — support financial goals, the success of many businesses can be traced to the good judgment, skills, and expertise of your key employees.

Ask yourself: What if a competitor makes your key employee an offer they can’t refuse? What is the impact on the business if you or your key employee dies? What happens to the family of your key employee when the paycheck stops?

Your key employees aren’t listed on your balance sheet or your income statement, but what they do makes an impact. Unfortunately, many business owners train and mentor employees with the intention they will stay forever, only to have them leave. Many people don’t realize how costly this can be if they have not thought about losing an employee, or considered the consequences associated with that loss.

The question becomes how to protect your business against these possibilities. Wisely allocating your financial resources and providing protection for multiple concerns with one specially designed program can help protect your business.

Triple Protection Plan

With a Triple Protection Plan you can help address your employee retention concerns and help protect against the financial impact of an employee death. It can also provide a benefit for an employee’s spouse and/or children.  Here are the three components of the plan:

  1. A Private Bonus Plan can help retain employees. It is a program you develop that would pay selected employees set bonuses at specific times. The plan can be informally funded with a cash value life insurance policy and helps protect against the employee’s voluntary departure by providing a strong incentive to stay. The business applies for, owns, and pays the premiums on a life insurance policy on the key employee to informally fund the private bonus plan.  The business can then withdraw policy cash values as needed and in accordance with policy terms to pay the scheduled bonuses. 
  2. Key Person Coverage can help protect against financial losses associated with an employee’s death. The proceeds from the same life insurance policy can help provide liquidity, which can be used to recruit, hire, and train a replacement. It can also be used for business continuation or overhead expenses.
  3. Family Protection allows the business the opportunity to share the life insurance protection with the employee’s family. Using an Endorsement Split Dollar plan, the company can provide life insurance to a key employee. The company remains in control of the policy while offering some financial resources for the key employee’s family with a portion of the death benefit.

Employee retention and the potential departure of a key person are concerns for all business owners. By using a Triple Protection Plan, you can help enhance your efforts to incentivize talented employees to stay. One plan to help address three problems!

Triple Protection Plan – An Employee Retention Strategy (pdf)
Triple Protection Plan – An Employee Retention Strategy (jpg)

This article is for general information and risk prevention only and should not be considered another other offer of insurance or legal, financial, tax, or other expert advice. The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all losses. The information herein may be subject to, and is not a substitute for, any laws or regulations that may apply. This information is current as of its publication date and is subject to change. Some of the services referenced herein are provided by third parties wholly independent of Federated. Federated provides access to these services with the understanding that neither Federated nor its employees provide legal or other expert advice. All products and services not available in all states. Qualified counsel should be sought with questions specific to your circumstances. All rights reserved.

Published Date:June 15, 2021

Categories: It's Your Life