What is Keyman Insurance? Is Your Business Protected From Death?

What is Keyman Insurance? Is Your Business Protected From Death?

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)?

6 Responses to What is Keyman Insurance? Is Your Business Protected From Death?

  1. Another variety of this I’ve seen is a cross-purchase agreement. Partner A buys insurance on Partner B and vice versa. Both are protected if the other dies. It also helps to fund a buy/sell agreement.

    • A Funded Buy Sell is different than the concept here. Buy Sells are a fascinating topic, that I don’t think I have discussed here. Thank you for the post idea.

      This is really for a non-partner/owner – so lets say you have an accountant at your office. This accountant can be a rainmaker or just a hard worker. You know that if he or she dies your firm would be in trouble in the short run. This just pads the business a bit.

  2. I am a very small business owner…just me. But I am involved in a couple of other businesses, so knowing abut Key Man insurance is a good thing. Thanks for the info.

    On another note: I noticed that your Alexa rating is under 100,000! Congrats!

    • As a small business owner of OTHER businesses (or even the solo) you should think to yourself what would happen if the employee was gone…and then insure for that amount.

      P.S. Thanks for Noticing! I am pretty pumped about it.

  3. Well if you’re the vital employee and your employer has Keyman Insurance on you, you’d better hope the business doesn’t take a nosedive…the employer may decide you’re worth more dead than alive! :)

    And congrats on the Alexa rank! Long live Yakezie!.

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