Benefits of Key Man Insurance
People are most important resources of a business and this holds true for the key employees and the owners of the business. This is because it is tough for the business to survive without them. The departure of key employees from the business can happen at any point in time. It could be due to change in job, retirement, disability or even death. Hence, it is important to protect the business from such losses. Key Man Insurance is one such way to help to protect the business when the business loses a valuable employee. Key man Insurance policy is considered to be an asset to the business and can help to pay for various activities like finding a replacement, providing training and temporary staffing. It is also the best way to retain the key employees by providing the fund as a retirement income.
Key Man Insurance is used to cover the key employees of the company and in the event of loss of the employees, the insurance will help the companies from suffering huge losses. If the policyholder is not well, passes away or leaves the job, the compensation payment can be used by the company for performing various activities in order to deal with the losses. Key man Insurance can be taken for more than one employee in an enterprise. In large companies, many policies are taken to protect the key people and the important employees. In small companies, only one or two people that have an impact are insured.
Though key man Insurance comes under life insurance, it is also considered to be a type of business insurance plan. This is because the policy is taken by the company and the company is the one that gets benefitted as they are the beneficiary. This means that the benefits such as compensation payment are paid to the company and not to the policy holder’s family. The compensation fund that is received can be used to settle debts, making client payments, securing loans and so on. Check out this https://www.mykeymaninsurance.com/ for more information.
Key Man Insurance is taken on an individual by a company in which he/she works. The company owns the insurance policy and is, therefore, the beneficiary of the policy. When it comes to taxation, Key man insurance is treated differently in different cases. An accountant will be able to guide you through the process and explain how the business gets affected. For taxation purposes, there are few points to be considered to determine the premiums as deductions.
The relationship between the two entities is only that of an employer and employee.
The main intention behind taking the insurance is to deal with the losses when the company does not get the services of the employee anymore It is either an annual or short term insurance Tax relief on the premium amount is provided to the company if the policy that is taken to protect the company from any losses is annual or a short-term policy. But this does not hold true for employees who own more percentage of shares in the company.
The insurance taken on the key person should be term insurance covering the person during the term of the policy and until the employee works for the employer. Whole Life Insurance will not be considered for atax deduction as the policy will last longer than the person’s stay at the company. Hence, whole life policy will not get any tax relief. While the premium amount can get tax relief, the payout amount can still be taxable. It is thus important to calculate the percentage of benefit to make sure that the payout meets the company’s purpose and needs. 15 Business Tips Every Entrepreneur Should Know
Unlike other types of life insurance, the premiums are not always tax deductible and thus, getting a key man insurance may cost the company. As an employer, make sure that the key employee meets some minimum qualifications. If you are confused to decide on the type of policy to take, a financial professional will be the best person to advise you or read 6 Best Business Tips from 6 Top Entrepreneurs .