How Do You Set Up a Keyperson Life Insurance Policy?
How do you set up a Keyperson Life Insurance Policy?
DISCLAIMER: The purpose of this information is to provide general information which is subject to change and is specific to state law. ReliaQuote is not providing legal advice. If you have a specific legal issue or accounting issue, you should consult with a lawyer who is licensed to practice law in your jurisdiction or a certified public accountant familiar with tax regulations in your jurisdiction.
The first factor to consider in setting up a Keyperson Life Insurance Policy is to determine how much death benefit is needed. The minimum usually considered is one times the key persons annual income, but other factors need to be considered. What if the business relationships of this person drive half of the company’s revenues? How difficult and costly will finding a replacement be? Are there business debts that would place financial hardship on the company?
Once the death benefit amount has been determined, the business would purchase the policy on the key person. The key person would be the insured and the business would be the owner, payor and beneficiary of the policy. Permanent or term life insurance can be used as a key person policy depending on the needs of the business and how much they are willing to spend.