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THE NATIONS' CAPITAL; Protecting the value of tribal leaders

VISTA, Calif. -- In a matter of years, a capable tribal leadership could
bring a fledgling tribe out of dependence on federal funding or out of debt
to economic self-sufficiency.

Tribes usually depend on their elected leaders and a few key executives to
work on important economic issues. Individuals responsible for these key
functions are called "key persons."

If a deadline is missed in completing audits or filing for grants, the
tribe could lose revenues. If a leader dies during negotiations for a
development project, the deal could die as well. Potential jobs would then
be lost, along with prospective profit distributions to the general

Time is money.

Witness the critical contributions of the Navajo code talkers during World
War II. Between 1942 and 1945, they provided encrypted military
communications and helped the United States win the war. During WWII, the
U.S. government floated $185 million in war bonds to finance the war, at an
average cost of more than $60 million per year. Imagine: If the Navajo code
talker unit had been lost, how much longer would the war have lasted, and
at what additional cost?

The unforeseen can happen any time, in the form of an accident, death,
disability, or serious illness such as cancer, heart disease or stroke. In
such events, business insurance can be used to replace a portion of that
person's financial contribution to the tribe. This type of insurance is
commonly called "key person's insurance."

The tribe takes out and pays for an insurance policy on each key person for
the term of employment or office. Should a key person die or become
critically ill during this period, the insurance would pay a certain lump
sum to the tribe.

The money can be used to cover expenses in the operations of the tribe,
search for a replacement, pay off debts, distribute money to general
council members or pay severance to employees whose department might shut

Three factors determine the amount of business insurance coverage needed:
identification of the key persons, value of the deal or grant, and
estimated time to get the project going again.

In one hypothetical situation, a tribal environmental coordinator
successfully obtained environmental grants averaging $450,000 for the past
two years. The position usually took six to nine months to fill, and the
grant application is due on June 1 of each year. No one within the
organization is knowledgeable about the nuances of the application and
audit process. The coordinator's untimely death could mean that the
department may not receive the grant. Without adequate funding, the
department would have to lay off employees due to a lack of funding in the
new fiscal year.

In this case, the tribe should consider investing life and critical illness
insurance policies of $450,000 on this executive. The life insurance policy
could have provided the tribal project with operational funding, even if
crucial deadlines were missed at this time, until the replacement executive
could be found to continue on.

In the second hypothetical, the president of a nation spearheaded a new
casino expansion. The tribe was to finalize negotiation with an investor
group, build a hotel complex and add 200 extra slot machines. Market
studies estimated additional earnings in excess of $5 million annually to
the tribe.

All of a sudden, the president suffered a heart attack and survived.
Doctors advised a substantially reduced workload and a regular diet and
exercise program.

In this case, a $2.5 million life or critical illness policy would have
covered the loss of time and progress. The president needed time to
recuperate. The mission had to be delegated and a new negotiator had to be

After six months, this process was back on track. The critical illness
policy covered the costs of executive search and transition, and replaced
part of the income the tribe might have otherwise earned.

The term of the policy depends on the expected years of service from the
key person. Premiums for key person polices depend on their design, age and
medical conditions. In general, premiums are lower when a person is younger
and healthier. Sometimes, coverage may not be available to key persons who
have pre-existing medical conditions such as heart disease with diabetes.
Therefore, it is prudent to obtain permanent or long term policies, for 10
-- 30 years, especially in those instances where tribal council has low

Key person policies are commonly used in business situations. Because of a
tribe's reliance on its elected officials to oversee the execution of its
business plan, investor groups may demand this type of coverage on tribal
council members during the term of the contract.

Please note that key person insurance differs from life insurance intended
for the key person's family. This is because the family will not receive
any insurance benefit distributions from a key person's policy. A separate
policy should be considered to cover the family's income needs.

The opinions expressed are those of Cynthia Tam as of 11/13/2005 and are
subject to change based on market and other conditions. Consult with
financial and legal expert before investing.