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Question 47 of 61 in Basics |
What about key person life insurance? |
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If a key person dies the company is likely to experience a loss of income and/or an increase in expenses. The company could purchase a term policy on the employee to provide compensating cash in the event of the key employee’s death. Since the dollar value of the employee’s work for the company diminishes as retirement approaches a decreasing term policy could be used.
Many companies, however, use cash value insurance to fund such a plan. If the employee survives to retirement, the cash value would then be used to fund a deferred compensation retirement benefit. Alternatively, the policy can be transferred to the employee at retirement. The policy should be owned by the business and the business should be the beneficiary. |
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