Key Employee Insurance (Do You Have A Favorite?)

Matt Butler |

Key Employee Insurance

Do You Have A Favorite?


Key employee insurance is a form of life insurance that can provide financial protection to businesses in the event of an unexpected death or disability of a business owner, partner, key executive, or other highly compensated employee. This type of insurance helps protect the company’s assets and ensures continuity of operations by providing cash to replace lost income and cover any costs associated with replacing the key employee.


The primary benefit of key employee insurance is that it replaces the lost income or value associated with the death or disability of a key individual. This allows business owners and partners to protect their investments and ensures continuity of operations in case of an unexpected loss. Additionally, many policies also provide funds for recruiting and training replacement staff, which can help alleviate the stress and hassle associated with replacing a key individual.


Key employee insurance can also be used to fund buy/sell agreements, which allow surviving partners or shareholders to purchase the interests of their deceased partner or shareholders. This type of agreement helps protect the value of the business in case of an unexpected death or disability and ensures that ownership is transferred according to the terms of the agreement.


In addition to protecting a business’s investments and continuity of operations, key employee insurance provides tax advantages for businesses. Death benefits received from life insurance policies are generally not taxable to businesses, provided that the proceeds are used for their intended purposes. This can help minimize or even eliminate any potential tax liabilities related to the death of a key individual.


Additionally, the employer can provide a split-dollar endorsement on the key employee insurance to be used as an additional incentive to the key employee.  Moreover, the cash value in the plan can grow and be offered to the employee as a bonus for commitment to the company.  For example, the employer can provide a clause stating that if the employee continues to work for the company for 10 years, then they will receive a portion of the cash value of the insurance policy. The premiums themselves are not tax-deductible to the employer, however, bonuses paid by the employer in connection with an endorsement split dollar plan are tax deductible as a business expense.


Overall, key employee insurance provides financial protection and tax advantages to businesses in the event of an unexpected death or disability of a key individual. This type of life insurance can help ensure continuity of operations and protect a business’s investments by providing cash to replace lost income, fund buy/sell agreements, provide incentive to the key employee to stay with the company, and cover the costs associated with recruiting and training replacement staff. By providing peace of mind to business owners and partners, key employee insurance can be an invaluable asset for any company. 


Is key employee insurance right for you?  Contact your financial professional to conduct a needs analysis.




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Matt Butler

Investment Executive 

AFIN Family Wealth Management

One Northfield Plaza, Suite 521, Northfield, IL 60093

Direct: 630-686-3267  

Branch: 630-686-1463