If your company is the sole owner and beneficiary of a key person life insurance policy, there are no tax implications for the insured employee. Premiums aren’t considered part of the insured’s taxable income unless they have ownership in the policy or would be a beneficiary.
What is a key person policy?
Key person insurance is a type of life insurance policy that provides a death benefit to a business if its owner or another significant employee passes away, according to the Insurance Information Institute (III).
Who is the owner of a key man life insurance policy?
In both cases, there is a policy owner who pays the premiums and names the beneficiary. Unlike a regular life insurance policy, a key man life insurance policy is owned and paid for by the business, and the company is usually the beneficiary. Q: How much do I need? A: There are several frequently used methods of valuing a key person.
Can a key man policy be used as an employee benefit?
A key man policy can also be used as an employee benefit, since the life insurance policy can be transferred to the executive or insured employee by the company. Though key person life insurance premiums aren’t tax deductible, the proceeds of the policy are usually provided to the company free of income tax.
How does tax treatment work for key man life insurance?
Tax Treatment for Employees. If your company is the sole owner and beneficiary of a key person life insurance policy, there are no tax implications for the insured employee. Policy premiums aren’t considered as part of the insured’s taxable income unless they have ownership in the policy or would be a beneficiary.
Can a director of a business take out key man insurance?
If you are a director of a business, you can still take out key person insurance, even if you are a majority shareholder. However, tax relief is less likely. Particularly, if you take out a critical illness policy. It’s always best to check this before taking out a policy first and to write up the terms to make yourself eligible.
