Key Person Life Insurance
Key Person Life Insurance protects business/employer against the risk of income loss arising from the death, injury or serious illness of a key person employed by its business.
The business should be the owner and beneficiary of key employee life insurance. The premiums for key employee life insurance are nondeductible and death benefits are received tax free. The business receives the life insurance death benefit as compensation for the income loss and/or increase in expenses resulting from the key employee’s death.
If the insured survives to retirement, the corporation can use the cash surrender value to fund a retirement benefit or transfer the policy to the key person at retirement.
Key Person Disability Insurance
Key Person Disability Insurance provides benefits to protect the company financially in the event that a key employee can no longer work due to a disability.
Key Person coverage provides cash flow to help companies move forward and maintain a profit in the event that a key employee becomes disabled
The company could use the disability benefits to hire a temporary employee should the disabled employee’s prognosis appear to be a short-term disability. In the unfortunate circumstance of a permanent disability, benefits would then be used to help defray the costs related to hiring a replacement employee, such as recruitment, training, startup, loss in revenue and unfunded salary continuation costs.