Business owners in America are well aware of the fact that a “Key Person” is the soul of any business. A “Key Person” could be the owner him/herself or any trusted employee of the respective company. This person usually holds a significant position in the business. Thus, the death of such a person can bring catastrophic losses to the company. A business might just have to close down if a Key Person Life Insurance policy is not in place when the key person of the business dies. That is exactly why a Key Person life insurance is well-suited for providing protection for the business to prepare for the contingency, and why Mohammad Nasirullah, an agent with New York Life Insurance Company, has come forward to help out the business people of New York to prepare for such situations.
How Does It Work? The arrangement is simple: The employer (business entity) is the owner, beneficiary and premium payer of a permanent life insurance policy on the life of the key person subject to the consent of the insured key person. At the death of the key person, the insurance company pays a death benefit, which is generally income-tax free, to the business, to help offset the economic loss to the business due to the death of the key person. This may, however, subject a business to the Alternative Minimum Tax that you should discuss with your tax adviser.
The Key Person life insurance policy simply provides the necessary funding for the business in this difficult time of need, which can be used for training or be recruiting the successor, paying the creditors and so on to keep the business running. Therefore, a Key Person Life Insurance policy can help assure the confidence of the business and its customers and creditors for a smooth transition upon the loss of the business’s key person. According to Mohammad Nasirullah, even though a little help may come from the business’s cash reserve or sinking fund or from its bank loans, these usually may not be adequate or effective compared to what a Key Person Life Insurance offers. The advantages of a Key Person Life Insurance, according to Mohammad Nasirullah are: “The death benefit will be paid out upon the loss of the key person when the business needs the money most. The insurance proceeds are not only generally federal income-tax free, but also protected from creditors. Most importantly, with the insurance proceeds, the business may never have to be closed down due to lack of funding.”