Cover your key employees. Protect your business.
The unexpected loss of a key employee can devastate your business.
Fortunately, key person life insurance is designed with this risk in mind. Also commonly-known as “key man insurance,” this coverage can help a business recover income loss resulting from the death, injury or serious illness of a critical employee.
In a key employee insurance policy, your business is both the owner and beneficiary. In most cases, premiums for a key employee life insurance policy are nondeductible, and death benefits are received income tax-free.
If the insured employee survives to retirement, your company can use the cash surrender value to fund a retirement benefit or transfer the policy to that employee.
At Higginbotham, we begin with listening and end with customized solutions.
So if you tell us that you have a high-value employee who’s an irreplaceable part of your organization, we may recommend key-person life insurance to protect your business against income loss arising from the death, injury or serious illness of that person.
Employee owned and customer inspired, we put you at the center of everything we do.
We understand key person insurance can be complicated, and that’s why our approach to finding solutions is simple.
We work to understand your priorities and get you the coverage you need, when you need it. Committed to both transparency and authenticity, we know that when we lead with values, value leads.
To learn more about how our values-based approach creates value for you and your business, click here.
Or visit our Insights page to discover how much key person life insurance you need.
Although key person insurance can be taken out on virtually any full-time employee, the decision to purchase a policy is typically contingent on the insured person holding partnership interests or occupying a mission-critical role in the organization.
If losing an employee would put your organization in a tough spot, key man insurance may be a wise investment. Some scenarios in which purchasing this life insurance makes sense include:
If you’re not quite ready to start a conversation about your life insurance needs, we get it. We appreciate the importance of being informed before making a decision and offer these insights to help.
The amount of insurance you need on a key person depends on the needs of your business. While there’s no standard formula for every company, it’s wise to carefully consider the financial and operational impact the loss of a key employee could have on your organization when selecting a policy.
You should also factor in your current financial situation, solvency, organizational needs and future plans.
Assuming you’ve checked all the boxes and want to move forward with a key person policy, you should request quotes from a variety of insurance carriers at different coverage levels to make sure you’re fully apprised of your options. In most cases, these policies can be structured with as little as $100,000 in death benefits and as much as $10 million or more.
That said, coverage eligibility is contingent on a key employee earning a salary that’s proportional to the amount of death benefits the organization is seeking. At the end of the day, you may be wise to secure as much key person coverage as your business can afford.
The last thing you want is to worry about keeping your business afloat while you’re mourning the loss of a coworker.
Policy specifics will vary based on your company’s legal structure and requirements outlined by your insurance carrier.
Though payment structure and other details may differ between small businesses and large enterprises, the organization is always the beneficiary of a key man policy when it pays the premiums and owns the policy.
Unlike some other forms of group and voluntary life insurance available to employees on an individual basis, premium payments on a policy paid for and owned by a company are usually not tax-deductible.
This is mostly due to the fact that the IRS requires a company to pay the premiums on a key person policy with after-tax income.
While premium payments made by a company on a key person insurance policy are typically subject to tax, death benefits paid to the business are usually tax-free. If your company is structured as a C-Corp, you will need to include death benefit payments to the business in calculating your alternative minimum tax (AMT).
Key person insurance can be an excellent way for your company to mitigate the financial risk of important employees passing away.
At Higginbotham, we are here to help give clarity to your coverage options.