Key man life insurance helps companies to reduce the risk of business disruption if employees that are critical to business operations pass away.
A key man policy can also be an employee benefit, if the company transfers the life insurance policy to the executive or insured employee. 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.
Also called corporate-owned life insurance (COLI), key man life insurance is purchased by a business to insure the life of one of the company’s employees. It’s intended to help the company recover from the loss of an employee that contributes significantly to the business, if that person's death would reduce productivity or the company's value. People an employer might have covered by a key man policy include top salespeople, executives and other decision makers, highly visible employees, and employees with unique knowledge or skill sets.
Key man life insurance differs from other life insurance policies in that the business is both the owner and the beneficiary of the policy. The employee essentially has no rights or participation in the policy. However, the business must notify the employee of its intent to purchase coverage on the employee, provide details of the policy, and obtain their written permission before purchasing it. All of this can be done using an Employer Owned Life Insurance Acknowledgement and Consent Form, which can be obtained from the insurer.
Term life insurance: Term life insurance provides coverage for a predetermined amount of time, such as 10 or 20 years, and is significantly less expensive than permanent life insurance. Typically, for a key man policy, the term is tied to a specific date, such as the employee’s expected retirement, or a projected timeline, like the amount of time it might take to double the sales team.
Permanent life insurance: In addition to providing lifelong coverage, a portion of permanent life insurance premiums are added to a cash value account which grows in value over time. The policy’s cash value is an a-set that can be used by the business as collateral for a loan and, if the policy was written by a mutual insurer, would make the business eligible to receive dividends. Since permanent life insurance policies accumulate value over time, they can be sold in a life insurance settlement should the company decide that it no longer wants coverage.
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ITR filing deadline extension: Has the deadline to file ITR for audit cases been extended from November 15, 2024? However, the income tax laws allow the taxpayer to still file ITR (also known as belated ITR) as well
