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Key Employee Life and Disability Insurance

You’ve got a great group working for you now, and business is good. You know that much of that success is due to one or two key people with both skills and personalities that are hard to match. Suppose they were injured and out of work for a while, or suppose they died? Would your business survive? Key employee life and disability insurance coverage can help make sure that it does.
 
When bad things happen to good people
 
Your key employees are those special people with such unique skills and talents that they contribute greatly to the financial success of your business. If a key employee were disabled and out of work, or were to die, your business would suffer a financial loss. Here are some possibilities
  • While the employee is out of work, the revenue that he or she generates may substantially decrease
  • You’ll incur unexpected expenses recruiting and training a temporary or permanent replacement
  • Less capable or inexperienced employees trying to fill in can make mistakes or cause delays that cost you money
  • If a key person dies, a business loan may come due
  • Customers or even other employees may look elsewhere, concerned for the future of the business after the loss of a key employee
Key employee life and disability insurance policies can help soften the impact of these blows. Generally speaking, these policies are sold to small or medium-size businesses; it’s in those operations that a single person can make the most difference to the bottom line. If you own a large company that’s better able to absorb the financial losses caused by losing a key employee, you may have difficulty buying the coverage you desire.
 
If death does you part--key employee life insurance
 
Typically, your business purchases a life insurance policy on a key employee, pays the premiums, and is the beneficiary in the event of the employee’s death. As the owner of the policy, the business may surrender it, borrow against it, and use either the cash value or death benefits as the business sees fit.
 
In determining how much insurance you’ll need, putting a dollar value on a key employee’s economic worth may be difficult. Although there are no rules or formulas to follow, several possible methods to determine the insurance amount may be used. The appropriate level of coverage might be the cost of recruiting and training an adequate replacement. Alternatively, the insurance amount might be the key employee’s annual salary times the number of years a newly hired replacement might take to reach a similar skill level. Finally, you might consider the key employee’s value in terms of company profits; the level of insurance coverage might then be tied to any anticipated profit loss.
 
The premiums you pay for key employee life insurance are not a tax-deductible business expense for federal income tax purposes, since your business is the recipient of the benefits. Prior to August 16, 2006, the death benefits your company receives as the beneficiary of the policy aren’t considered to be taxable income. But for policies issued after August 16, 2006, proceeds from a life insurance policy insuring the life of an employee and payable to the employer-policy owner may be subject to income tax, unless an exception applies. Also, if your business is a C corporation, the death benefits may increase the corporation’s liability for the alternative minimum tax. You should consult a tax professional for information on your circumstances.
 
Riding out the hurt--key employee disability insurance
 
The death of a key employee isn’t the only threat to your business. Suppose a key employee is injured or becomes ill, and is out of work for an extended period? Disability insurance on such a key employee is another way you can protect your business against any resultant financial loss.
A critical part of key employee disability insurance policies is the definition of disability. Usually, these policies define disability as the inability of the employee to perform his or her normal job duties due to injury or illness. As with life insurance, your business buys a disability insurance policy on the employee, pays the premiums, and is named as the beneficiary. When the employee is disabled, the insurance coverage pays monthly disability benefits to your business. These benefits can equal a certain percentage of the key person’s monthly salary, up to either a maximum monthly limit or 100 percent of that salary. The benefits may be used to pay the operating expenses of the business and to cover the expense of finding a temporary or permanent replacement for the key employee.
 
The policies typically offer elimination periods (i.e., the waiting period between the disability and when the benefits begin) ranging from 30 to 180 days. Depending on the policy, your business may receive the benefits for 6 to 18 months--long enough to allow the key employee to return to work or to allow the company to replace the key employee. The policy is normally a noncancelable contract, guaranteeing the premiums and the coverage amount. A waiver of premium option can be an important part of these policies. This option provides that, once the elimination period has been satisfied, the insurance company will pay the premiums as long as the disability lasts or until the benefit period ends.
 
Sometimes included in the base disability policy coverage (or available as an optional benefit for an additional premium) is personnel replacement expense coverage that pays for the cost of finding and hiring a replacement for the key employee. These benefits are usually payable after the key employee’s disability has lasted at least 6 months. Your business will be compensated for actual replacement expenses incurred, including advertising costs, employment agency fees, and the first 3 months of the new employee’s salary.
 
As with key employee life insurance, the premiums you pay for the key employee disability policy are not a tax-deductible business expense. As a result, the benefits your business receives are not generally considered taxable income.
 
Investment and Insurance Services - Located at NYCB 


Insurance products are offered through LPL Financial or its licensed affiliates, member FINRA / SIPC. New York Community Bank, New York Commercial Bank and Investment and Insurance Services are not registered broker / dealers and are not affiliated with LPL Financial.

Not FDIC Insured ​No Bank Guarantee ​Not a Deposit
​May Go Down In Value ​Not Insured by Any Federal Government Agency

This site is designed for U.S. residents only. The services offered within this section are available exclusively through our U.S. Investment Representatives. LPL Financial's U.S. Investment Representatives may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state.
 

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The Divisions of New York Community Bank

Queens County Savings Bank​

Established on April 14, 1859 in the village of Flushing, Queens County Savings Bank was the first savings bank chartered by the State of New York in the New York City borough of Queens. Until then, local residents would need to travel to Manhattan to do their banking; the opening of the borough’s first local bank was accordingly met with elation and relief.

While the bank expanded here and there over the course of the next 14 decades, its greatest growth occurred in just the last 15 years. In anticipation of expanding its franchise through the first of several mergers, the Bank changed its name to New York Community Bank on November 21, 2000. By the end of that year, NYCB had grown from 14 to 86 branches; today, it has more than 220 branches in five states.

In deference to its heritage as a Queens-based institution, the Community Bank operates each of its 38 branches in the county under its original name, Queens County Savings Bank.

Roslyn Savings Bank

Established in 1875, The Roslyn Savings Bank was the first financial institution headquartered in Nassau County, one of two counties--with Suffolk--that constitute Long Island, New York. Its founders wanted to build a bank that would provide the Island’s residents with a safe place for their savings, as well as the financial assistance they’d need to build or purchase homes.

A member of the NYCB Family of Bank since October 31, 2003, Roslyn Savings Bank today serves the Island’s businesses and consumers through 42 conveniently placed branch offices.

Richmond County Savings Bank

A member of the NYCB Family of Banks since July 31, 2001, Richmond County Savings Bank is the third oldest of our divisions, with roots that go back to October 30, 1886. It was then that the bank was established to serve those who lived and worked on Staten Island, and it was less than one year later that it made its first mortgage loan.

Today, nearly every street on the Island has at least one home that was financed by Richmond County Savings Bank.

Originally located in the Odd Fellows Building at the corner of Richmond Terrace and Broadway, the Bank today has 20 convenient banking locations in all.

Roosevelt Savings Bank

Roosevelt Savings Bank was established in 1895 on the corner of Gates Avenue and Broadway in Brooklyn under the name “Eastern District Savings Bank.” In 1920, the bank changed its name to honor the memory of the nation’s 26th president, Theodore Roosevelt.

In February 1999, Roosevelt Savings Bank merged with and into Roslyn Bancorp, which merged with and into New York Community Bancorp, Inc. in October 2003.  Today, Roosevelt Savings Bank serves its customers through seven branches in Brooklyn as a member of the NYCB Family of Banks.

Garden State Community Bank

Garden State Community Bank has been a member of the NYCB Family of Banks since March 2008, when we combined all the branches of four smaller New Jersey-based divisions--First Savings Bank of New Jersey, Ironbound Bank, Penn Federal Savings Bank, and Synergy Bank—into a single division with a highly relatable name.

While Penn Federal Savings Bank and Synergy Bank were directly acquired in 2007, First Savings Bank of New Jersey and Ironbound Bank were acquired in 1999 by Richmond County Financial Corp., which subsequently merged with NYCB.

By combining the strengths of these four local banks with the strengths of our institution, we established a Garden State community bank that offers more products and services, and more convenient locations, than any one of these banks provided on its own.

Today, we serve our customers through 45 branches in Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union Counties, most of which first opened their doors nearly 14 decades ago.

AmTrust Bank

AmTrust Bank is one of the more recent additions to a respected banking family that has been serving customers and communities for more than 156 years.

The first branch of AmTrust Bank opened its doors in the late 1980s, when Ohio Savings Bank opened the first of its branches in south coastal Florida under the “AmTrust Bank” name. Eleven years later, it expanded again--this time to Arizona--and on December 4, 2009, it joined the NYCB Family of Banks. With our acquisition of Desert Hills Bank less than four months later, we further expanded our franchise in the Grand Canyon State.

Currently in its seventh year as an NYCB division, AmTrust Bank serves its customers through 41 convenient branches: 14 in central Arizona and 27 in Florida.

Ohio Savings Bank

Ohio Savings Bank is one of the more recent additions to a respected banking family that has been serving customers and communities for more than 156 years.

Established in 1889 as the Ohio Savings Home Loan and Building Co., the bank’s initial expansion was limited to Ohio until it opened its first Florida branch in 1989. Eleven years later, it expanded again, this time to Arizona. And seven years later, it changed its name to AmTrust Bank.

On December 4, 2009, AmTrust Bank became the newest member of our banking family, the first of our divisions to serve customers in non-contiguous states. Four months later, we elected to pay tribute to its forebear, by operating our 28 branches in Ohio under a more suitable name: Ohio Savings Bank.

To learn about our commercial bank, visit

New York Commercial Bank 


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