How do you determine the financial value of a key employee to determine how much insurance to purchase?
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UPDATED: Jul 16, 2021
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Several possible techniques are available. Four common methods that are often used:
1. Apply a multiple of the key employee’s salary
2. Capitalize (at some discount rate) the company’s earnings traceable to the that employee
3.Estimate the reduction in the going concern value of the firm due to the loss of that employee
4. Base the estimate on judgements including such things as how much insurance the insurance company is willing to issue on the key employee.