The Requirements of Key Employee Life Insurance

Key employee insurance should be owned by and payable to the corporation, which should also pay the premiums. As will be noted below under the discussion of taxation, adverse consequences are likely when the proceeds of an employer-owned policy are paid to a party other than the corporation or its creditors.

A corporate resolution should be entered into the corporate minutes stressing that the coverage has been purchased to indemnify the business for potential loss at the death of a key person and to serve any other corporate purpose. The resolution of the board of directors might stress the loss in words similar to the following:

“The death or permanent disability of Jo-Ann Egly, Senior Vice President, would result in the loss of her unique fishing experience, special management abilities, dealer contacts, and understanding of the sports fishing industry and its economic direction.”

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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