The employer resolves to purchase life insurance on a key employee's life.
The employer buys life insurance on a key
employee's life. The employer is the applicant, owner and beneficiary of the insurance on the key
employee's life.
Upon the key employee's death,
the employer receives the death benefit.
One major concern facing most businesses is planning for the loss of a
key employee. Often, the success of a business is dependant upon the unique skills and abilities
of a key employee. The company will have a difficult period of adjustment following the death of
a key employee. Typical losses associated with the loss of a key employee include:
A loss of management skills and experience.
A disruption in sales or business production.
A weakening of the company's credit rating.
Expenses associated with recruiting and training a replacement for the key employee.
The business applies for a life insurance policy on the life of a key employee.
The business is the owner, premium-payor, and beneficiary of the life insurance on the key employee's life.
Upon the key employee's death, the death benefit proceeds are paid to the business. The proceeds may provide
the resources that the business needs to rebuild after the loss of the key employee.
A business purchases a life insurance policy on a key employee's life.
The business pays all the premiums and retains all the ownership rights to the policy. Any cash
value in the policy accumulates in a tax-deferred manner and can be accessed by the business.
Upon the employee's death, the death proceeds are paid to the business generally income tax-free.
The business uses the death proceeds to sustain operations during the transition between the death
of the key employee and the hiring and training of his or her replacement.
At the insured's death, the death benefit is received generally income tax-free
by the business.
At the insured's death, the business receives needed funds which can be used to
help meet financial obligations and train a replacement for the key employee.
Any policy cash value accumulates in a tax-deferred manner.
The business may access the cash values of the policy through income tax-free
loans and withdrawals.
Premium payments are not income tax deductible.
Corporate creditors can make claims against cash values of corporate-owned life insurance.
Death benefit proceeds, although exempt from the ordinary income tax, may be
subject to the corporate alternative minimum tax.
