Key person (employee) insurance is a particular type of life insurance policy taken out by a company on one of their employees, in which the company is the beneficiary in the case of that employee's untimely demise.
Key person insurance is a relatively new insurance coverage, but has attracted much praise and is encouraged by many strategic advisors. Life insurance is basically a system by which a fixed amount of money is paid to a beneficiary in the event that the person being covered dies.
A buy-sell agreement establishes the fair value of a person's share in the business, which comes in handy if a partner wants to remain in the company after another partner's exit. This helps forestall disagreements about whether a buyout offer is fair since the agreement establishes these figures ahead of time.
The life insurance policy used in the informal funding of a deferred compensation plan is a permanent life insurance policy that is owned by the employer who is also its premium payer and beneficiary. The executive participant in the plan has no rights at all in the policy.
Employers have a wide variety of optional plan designs to customize a group life insurance plan. Optional coverages include voluntary life insurance, supplemental life coverage, accidental death and dismemberment policies, and dependent life insurance. The premium paid for group life insurance is generally a business deduction, and this stand-alone contract is usually less expensive than the life coverage provided with medical/health insurance.
