Home Finance What And What You Need To Know About Key Man Life Insurance

What And What You Need To Know About Key Man Life Insurance

key man life insurance

In today’s article, we will be discussing what you need to know about key man life insurance, what is key man life insurance? How do they work? What do they cover? What can they not cover? These are a lot of questions that may be going through your mind right now, but not to worry all the questions will be answered right in this article today. Firstly we should explain what a key man’s life insurance is, from there we can dig deep into everything one needs to know.


What Is Key Man Life Insurance?

Key man life insurance is a type of policy that gives financial protection for a company or business if any of their substantial workers dies (key worker/employee). This policy is very helpful for businesses or companies because this insurance will help them bounce back and continue operating the company after losing the person that contributes well to the company. The company/business is the beneficiary of this policy and they are the ones that pay the premiums.

How Does Key Man Life Insurance Work?

When a key employee or worker dies, this can lead to a lot of challenges like losing customers, decreasing productivity or even sometimes this can lead a permanent shutdown of operation. This is where the key man life insurance comes in, they can help the business clear all these losses by providing enough financial protection for the business.

The death benefit from the insurance policy can be used to cover the bills of replaying the worker and other important expenses that the company might need to recover, this policy can also be used to provide stability financially for the deceased family.


Types Of Key Man Life Insurance Work

We have two types of life insurance and this can also be used for key man life insurance policies, these include term life insurance and permanent life insurance.

The Term Life Insurance: Term life insurance is less expensive than permanent life insurance, this policy usually has a time limit to their coverage the range of years they can cover is 10-40 years, and some are tied to the day they will retire that is when the policy ends.

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Permanent Life Insurance: Permanent life insurance is very expensive because their coverage is for a lifelong, the premiums for permanent life insurance are usually paid into a cash value account which can accumulate in value over a period of time, this cash value is an asset that can be used as collateral for a loan.

NOTE: For any life insurance you want to get make sure it is workable or elastic that you can able to abide by.

Key Man Life Insurance Tax Treatment

Generally, the cost of the key man life insurance policy is not tax deductible and the premium will have to be paid after-tax dollars, the employee or worker automatically becomes the beneficiary if the company decides to deduct the key man premium and they are regarded to be part of the worker taxable income.


The key man insurance policy is that the death benefit should be paid to the company if the employee dies without income tax in some cases, the C Corporation is excluded from this. As a key person and you’re in the C Corporation, your death benefit will be included in the alternative minimum tax (AMT) sum.

Employee Tax Treatment

There will not be any involvement of tax for the insured worker or employee if the company they work for is the beneficiary of the key man life insurance policy, premiums will not be considered as a part of the employee’s taxable income only if the person wants to be a beneficiary or have any ownership in the policy.

Key Man Insurance Cost

The cost for the key man life insurance is depending on the type of policy you purchase, the policy death benefit, and the worker/employee’s state of health and lifestyle.

The Type of Insurance Policy Purchased: The type of policy purchased will determine the cost of your policy as we all know term life insurance is lesser in cost than one permanent life insurance, so before purchasing you need to know this and know that the time coverage for term life insurance is shorter.

Policy Death Benefit: The higher amount of premium, the greater coverage for the death benefit will be for the company.

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The Employee/Worker State Of Health And Lifestyle: The key employee or worker’s age, hobbies, medical report, general health issue, occupation, family history and so on will depend on the amount you have to pay as a premium. If you will be purchasing this policy for an old person or the person that smokes note that the premium will be very expensive which you may not be able to afford or the coverage for them may not be available. Hence, it is advisable for you to check other insurance policies that can be covered them.


In summary, all companies and business owners are needed to purchase keyman life insurance because they are very helpful for businesses that lose their key person, now what you need to know about keyman life insurance is stated in this article.

Thank you for reading, you can drop your comments in the comments section.

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