Many business owners, especially smaller businesses owners rely heavily on one or two key employees; but what happens if that key person dies? How long will it take to get that business up back to its previously efficient way? How much will it cost to retrain someone? Those are obviously questions that only a business owner can answer, and the answers are as individual as the businesses that attempt to answer them.
What is Key Man Insurance? Who Owns the Insurance?
Keyman insurance also sometimes referred to as Key Executive Insurance is a way for a business to receive an influx of cash when they just lost a valuable team member. Put bluntly, when that key person died it put the business in a bad position, financially (and probably emotionally) so there is an insurable interest in terms of filling this need. So, the boss purchases life insurance on that particular employee, if or when the insured/employee dies the business will receive a lump sum.
Generally, the family will receive nothing because this has nothing to do with them; all the employee did was just take a blood test. The premiums are paid for by the Owner of the business. This inevitably leads us to:
Are the Premiums for Keyman Insurance Tax Deductible?
In most cases the premium is not tax deductible, but the death benefit is not taxable income for the company either.
Does your Boss have keyman life insurance policy on your life? Are you an owner of a company – have you insured your main employee(s)?