Key Person Insurance
Protect Your Business from an Unexpected Death
Every prudent business owner has insurance to protect against loss from fire, theft and other risk. However, many businesses do not think to insure against the loss of one of their most valuable assets—key people in their business.
If a person critical to the success of a business dies, the loss of their specialized skills and abilities can be devastating. Projects often come to a stand still. The business often loses sales, momentum, and even credit. Plus, the business faces the costs of hiring and training a replacement. Life insurance can help.
How It Works
The business applies and pays for life insurance on each key employee. The business is the owner and beneficiary of the policy. At the key employee's death, the death benefit is paid directly to the business. Proceeds can fill several needs:
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Tax and Financial Considerations
Policy cash values are carried as a business asset and are available as policy loans or as collateral for commercial loans. However, keep in mind, withdrawals and unpaid policy loans may be taxable and will lower policy value and available death benefits. Excessive withdrawals could cause the policy to lapse unless additional premium is paid.
Death benefit proceeds are generally received income-tax free by the employer. However, proceeds may be included in “adjusted current earnings” to the extent they exceed the policy's tax basis, for purposes of the federal Corporate Alternative Minimum Tax.
How Can Ameritas Advisor Services Help?
Ameritas Advisor Services has a variety of life insurance policies that may be able to help you implement this concept. For more information call the Ameritas Advisor Services professionals.
These ideas reflect our current understanding of applicable law. Ameritas Life Insurance Corp. and its representatives do not provide tax or legal advice. You should consult your own tax or legal adviser regarding your unique situation.
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