Key-person insurance benefits are often used to buy out the insured person's shares or interest in the company. Buy-sell agreements, which require the deceased executive's estate to sell its stock to the remaining shareholders, legally facilitate this process. Proceeds from key-person insurance can also be used to recruit replacement management.
The following form contains some critical questions you should ask your agent or broker when considering this type of insurance.
Massachusetts Checklist — Key Employee Life Insurance is a crucial insurance coverage designed to protect businesses against unforeseen financial loss caused by the death of a key employee. It serves as a risk management tool for businesses who heavily rely on key personnel for their operations and success. Key Employee Life Insurance policies in Massachusetts provide financial security to organizations by compensating them for losses incurred due to the death of a key employee. This insurance coverage ensures that businesses can carry on their operations smoothly without facing significant disruptions or financial hardships in the absence of a key contributor. It addresses the financial uncertainties that arise from the loss of a crucial team member and allows businesses to retain stability during challenging times. Typically, Massachusetts Checklist — Key Employee Life Insurance policies cover the following aspects: 1. Death Benefit: A lump sum payment is made to the business upon the death of the insured key employee. The amount of the benefit is determined based on the impact and financial loss that the organization may suffer as a result of the key employee's absence. The proceeds from the policy can be utilized to offset financial obligations, recruit and train a replacement, or cover any other necessary expenses. 2. Policy Ownership: The business is usually the owner and beneficiary of the policy. This ensures that the organization has control over the insurance coverage and can utilize the benefits according to its specific needs. 3. Premium Payments: The organization pays the premiums for the key employee life insurance policy. The premiums are determined based on factors such as the age, health, and role of the insured key employee, as well as the policy duration and coverage amount. 4. Tax Considerations: In most cases, the premiums paid for key employee life insurance coverage are not tax-deductible. However, the death benefit received by the business is typically tax-free, providing valuable financial relief in times of loss. 5. Policy Duration: Key Employee Life Insurance policies can have different durations depending on the needs of the business. Common options include term policies with a fixed period or permanent policies that provide coverage for the employee's entire lifetime. Companies can choose the duration based on their specific requirements and the expected timeline for the employee's contribution to the organization. It is important to note that while key employee life insurance may sound similar to individual life insurance, it serves a different purpose. Individual life insurance aims to provide financial protection for the insured person's family or dependents, whereas key employee life insurance protects the business itself from financial loss. In summary, Massachusetts Checklist — Key Employee Life Insurance is a vital risk management tool for businesses, safeguarding their financial stability in the event of the death of a key employee. It provides financial security by compensating the organization with a death benefit, which can be used to address various business needs in the absence of the key employee. Additionally, it offers tax advantages and flexible policy durations to suit specific business requirements.
