Key person insurance is an often-overlooked policy that can protect businesses that rely heavily on one or two people for their success. The National Association of Insurance Commissioners (NAIC) estimates that approximately 80,000 small businesses in Mississippi may benefit from having this coverage.
If you are interested in learning about key person insurance, you can talk to an independent insurance agent. These local agents can answer your insurance-related questions and can help you find the most affordable policy. Contact an insurance agent near you to get started.
What Is Key Person Insurance?
Key person insurance is a commercial insurance product that is designed to indemnify your company for the loss of earnings it may sustain if certain key employees die or become severely disabled while working for your company.
Insurance companies may use different names when referring to this insurance. Some commonly used names include the following.
- Key employee insurance
- Key person life insurance
- Key man life insurance
- Life insurance for key employees
- Corporate owned life insurance (COLI)
Regardless of what they are called, these policies all work in the same way.
How Does Mississippi Key Person Insurance Work?
You identify the key person or persons you want to cover, and your business will pay the premiums for this coverage. This makes your business the holder of the policy and the sole beneficiary if the insured persons die or become severely disabled while the policy is in place.
The individuals you are insuring will need to carry their own personal life insurance policies if they want to have coverage for their family members.
Who Is Considered a Key Employee?
Key employees are those whose unique knowledge and rare skills play a significant role in your business’s success. Basically, if a certain employee’s sudden absence would result in major financial losses to your company, you may want to consider that person a key employee.
Key employees are typically business owners, founders, and certain high-ranking workers. They can also include high-profile spokespersons. Your business ultimately decides who, if anyone, is a key employee.
How Much Does Key Person Insurance Cost in Mississippi?
The cost of key person insurance can vary from one policy to the next. As with any kind of life insurance policy, premiums can be influenced by factors such as the following.
- The amount of coverage you are purchasing
- The occupation and industry of the person(s) you are insuring
- The age and health history of the person(s) you are insuring
- Whether the person(s) you are insuring uses tobacco products
- If purchasing a term policy, the length of the term
- Whether your policy includes coverage against extreme disability as well as death
Local independent agents can help you compare customized quotes from a few insurance providers so you can be sure that whatever policy you choose, you are getting it at a reasonable price.
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Is Key Person Insurance Permanent?
Although key person life insurance can be permanent, most policies purchased by businesses in Mississippi are for term coverage.
Term policies are much less expensive than permanent policies, and in most cases, your business only needs this coverage until the person you are insuring retires or leaves your company.
The benefit of purchasing a permanent key person life insurance policy instead of a term policy is that permanent policies accrue a monetary value and can be cashed in once the coverage is no longer needed.
What Does Key Person Insurance Cover?
Key person insurance covers the business that owns the policy if the named insured dies while the policy is in place. If your policy includes a disability rider, your business can also receive funds in the event of a disability that leaves the key employee unable to work.
Your company will receive funds in the amount of the policy you have purchased. These funds can be used in any way that your company sees fit. Most businesses use the funds to cover lost profits, pay recruiters to find a suitable replacement, or dissolve the company.
Are Proceeds for Key Person Insurance Taxable in Mississippi?
Your company may or may not have to pay taxes on the funds received from the insurance company if a key employee dies or becomes disabled.
In most cases, key employee benefits are not taxable. However, if your company is set up as a C corporation, you may have to include the proceeds into the calculation of the alternative minimum tax (AMT), and therefore may end up paying taxes on them.
Also, if your company carries a permanent key person life insurance policy and decides to cash it in, you will most likely need to pay taxes on the settlement amount.
You can consult a tax attorney or financial advisor to find out the tax implications of a key person insurance policy on your Mississippi business.
Are Premiums for Key Person Insurance Tax Deductible?
Because the proceeds of a key person life insurance policy are paid out to businesses tax-free, the IRS does not permit premiums paid for this coverage to be deducted as a business expense.
How to Find the Best Key Person Insurance Coverage in Mississippi
When you are shopping for the best life insurance for your company’s key employees, a local independent agent can help. These experienced agents can provide you with policies and quotes from a few competing insurers so you can be sure you are getting the coverage you need at a good price.
There are more than 200 independent agents in Mississippi. Set up a one-on-one consultation with an insurance agent near you to start comparing customized quotes for key person insurance.
TrustedChoice.com Article | Reviewed by Jeffrey Green
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