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Key Person Insurance

Key person insurance

What is Key person insurance?

Key person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps akey employee or two. These are the people who are crucial to a business--the ones whose absence would sink the company.

What do you mean by key man insurance?

Here's how key man insurance works: A company purchases a life insurance policyon the key employee, pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff.

What is key person cover?

Put simply, Key Person Protection (also known as key man insurance or key person insurance) is a business insuring itself against the financial loss it would suffer if a key person in their business died or were diagnosed with a specified critical illness if chosen, during the length of the policy.

What is the meaning of key people?

Individual whose knowledge, creativity, inspiration, reputation, and/or skills are critical to the viability or growth of an organization, and whose loss may cripple it.

How is key person insurance taxed?

Key man insurance is taken out by a company on an individual within the company. The company, therefore, owns the policy and will be the beneficiary of and claim. The premiums are paid by the company and are tax deductible as long as the reasons for cover fit certain criteria which in most circumstances it will.

How is key man insurance taxed?

As an employer, you need to make sure you follow IRS guidelines to get the maximum tax benefit from key man life insurance. Generally, the death benefit of a life insurance policy is tax free when the premium is paid with after-tax dollars, although premiums are not deductible.

What is the purpose of a key person insurance?

The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose ofkey person insurance is to help the company survive the blow of losing the personwho makes the business work.

What is a key man risk?

The loss of a key person can be a real blow to a firm's finances, confidence and company image. Financial advisory firms are particularly vulnerable to key man riskas the nature of advice often means advisers have personal relationships with their clients, who will often follow the adviser out the door.