Travel$ense User's Guide (PDF, 139 MB) - NBAA

168TRAVEL$ENSEBased on a review of professional papers and published articles and interviewswith several insurance companies, and as a rule of thumb, the amount of keyman insurance coverage, or value, of an individual is normally determined at alevel of five times the individual’s annual total compensation. 14 The rationale forthis rule of thumb is that, in most cases, a replacement can be found andtrained within a five-year period. 15 Coverages higher than five times anindividual’s annual compensation normally require in-depth justification by theagent writing the policy. Even under such circumstances, however, a number ofpolicies have been written at levels of 10 times the annual compensation. 16 Itwould appear that many of the methods that have been developed recentlytend to justify coverages in excess of five times annual compensation, as will becovered under the analysis of individual methods and techniques.Aside from key man insurance, life insurance policies are offered as fringebenefits to most management employees of corporations. These policies aregroup term insurance intended to protect employees against loss of earnings.They generally are written for a face value of one to three times the annualsalary. 17 In large corporations the coverage has tended to be three times thesalary. For senior executive personnel, additional coverage has been negotiableand coverages have tended to average two to four times the salary above thebasic group policy, or between five to seven times the annual salary. Thesecoverages are intended to provide a benefit to the employee at the employee’sown perceived value rather than the value of the employee to the business. Thevalue of an individual to a corporation is substantially greater than theemployee’s compensation.While key man insurance is directed at protecting the company againstcatastrophic loss, the real value of the savings in time occasioned by judicioususe of business aircraft should be directed at making the key executives moreproductive by carefully husbanding their time. Such gained time should beevaluated against additional beneficial work the executive can accomplish withinthe same working day, based on that employee’s contributions to companyprofit.RELATIONSHIP OF SALARY TO TOTAL COST OF COMPENSATIONThe basic cost of an employee to a company normally is considered to be theemployee’s annual wage or salary plus the cost of the employee’s fringebenefits paid by the company. Fringe benefits, which normally include social14 0p. Cit., Smith, J.C., p. 655.15 Brown, R.A. and O’Neill, J., Appraising The Human Asset for Business Life Insurance requirements,Journal of American Society of Chartered Life Underwriters, Vol. VI (Fall 1957), p. 348.16 Young, P., U.K. Comes To Terms With Key-Man Coverage, Chief Executive (U.K.), February 1984, pp.34-36.17 Williams, W.G., Group Life Insurance, Life and Health Insurance Handbook, Richard D. Irwin, Inc.,Homewood, III., 3rd Ed. 1973, pp. 372-391.Copyright © 1999, National Business Aviation Association, Inc.