Key Person
What is Key Person Insurance?
Key person insurance is a life insurance policy that pays a death benefit to a business if its owner or a crucial employee dies, according to the Insurance Information Institute (III).
This insurance is beneficial in several situations:
- When a key employee’s skills or reputation are vital to the business's success.
- If the death of a key employee could threaten the company’s financial stability.
- For businesses needing collateral for loans that involves a key person policy.
- In partnerships, to facilitate buying out a deceased partner's shares.
How Much Coverage Should I Buy?
Determining the amount of coverage is not straightforward. Start by assessing the financial impact of a key employee’s death. For sole proprietors, consider enough coverage to settle debts and close the business. For larger companies, calculate coverage to replace the key employee’s income or support costs while finding a replacement.
Who Owns the Key Person Policy?
Typically, the company owns the policy, pays the premiums, and is the beneficiary. The key employee must consent in writing to the company owning the policy.
Is Key Person Insurance Tax-Deductible?
The IRS states that premiums for life insurance policies are not deductible as business expenses. Consult your insurance provider for more detail
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