Posted: Mon Apr 24, 2006 11:12 am Post subject: A brief about Keyman's Insurance
Keyman's insurance has turned out to be one of the key factors in today's business world from the investor's point of view. Though this form of insurance has no legal definition still its very much a life insurance policy associated with the protection of a corporation or a business from the drastic effects of one of their key employees.
The corporation is supposed to act as a beneficiary of the insurance policy and is entitled to receive the proceeds in case one of the key employee's life is jeopardized. Therefore its just a term insurance covering the life of the employees, ensuring that the term doesnot exceed the period for which the employee remains valuable to the employer.
This form of insurance helps to reimburse the employer against any loss of income caused due to the expiration, sickness or injury of the key employee.
Posted: Tue Apr 25, 2006 4:58 am Post subject: employer-paid Keyman's insurance
Sir,
I have a couple of questions in this regard. Should we consider the employer-paid Keyman's insurance premiums as deductible for the profits tax ? What about the policy proceeds ? Are they also taxable ?
regards,
Jane _________________ Register Now to have your Insurance queries solved.
Posted: Tue Apr 25, 2006 7:55 am Post subject: Proceeds are taxable
Hi everyone !
Incase the policy has features like the ones described in my first posting, then I am sure the premiums would be deductible. The policy proceeds would act as a compensation to the employer as the loss of profits. Hence the proceeds are taxable as trading receipts of the employer.
regards.
Posted: Tue Apr 25, 2006 8:59 am Post subject: are the premiums deductible ?
hi...I'm back again with another question in this regard....suppose I consider the employer to be either a sole proprietor or in a partnership and the insured to be a sole proprietor or a partner, would then the employer's premiums paid with respect to the policy be deductible? Are the policy proceeds also taxable in that case ?
regards. _________________ Register Now to have your Insurance queries solved.
Posted: Wed Apr 26, 2006 5:28 am Post subject: No Way !
My friend, basically we need to understand one important thing....and thats solely the relationship between the organization and its sole proprietor or partner. We need to understand that the sole proprietor or a partner is not an employee to an organization. In case there had been any employer-employee relationship then only the Keyman Policy would have applicable over here. The premiums of this insurance are not deductible.
bye for now,
fatman
Posted: Wed Apr 26, 2006 6:47 am Post subject: are the employee paid premiums deductble ?
Hey...I'm sure this is an important topic and probably everybody would have something to ask or say about it ! I would like to know if the policy premiums paid by a limited company employer be deductible (assuming that the insured is a director with a good value of shares in the company.) ? _________________ Register Now to have your Insurance queries solved.
Posted: Wed Apr 26, 2006 8:11 am Post subject: Policy would protect the shares
I think in this case neither the proceeds are taxable nor the premiums deductible. Incase the key employee be the sole proprietor or partner, the policy would be directed to protect the value of the shares since the life of a major employee is jeopardized.
Posted: Fri Apr 28, 2006 4:53 am Post subject: It could be an endowment policy
Should we consider the premiums paid by the employer on the Keyman's policy as deductible ? Incase its not a term policy but a life policy with a surrender value or an endowment policy what do we consider about the premiums ? Would the proceeds of such a policy be taxed ? Please explain.
Ferguson _________________ Register Now to have your Insurance queries solved.
Posted: Tue May 22, 2007 1:31 am Post subject: Keyman Insurance
If a company buys this insurance for the employees benefit, and the employee recieves at retirement, would it be taxable or canthisbe rolled into an IRA to avoid taxes? _________________ Register Now to have your Insurance queries solved.
Tax issues on key person disability and life insurance:
The premiums are NOT tax deductible to the business, regardless of the entity formation (corp, partnership, sole prop, etc.)
The benefits received, if any, are NOT taxable to the business that owns the contract insuring the key person.
If this policy is assigned to the employee upon retirement as a retirement benefit, it would more than likely create a taxable event to the employee depending on the situation and the type of policy involved.
Key Person life insurance: the purpose is to indemnify the owners of the business for the death of the key employee, and it does nothing for the employee personally. It is to protect the business.
Key Person disability insurance: once again, the purpose of the coverage is to indemnify the business in the event the key employee becomes disabled. It normally has a lengthy waiting period after the occurrence of the disability and before the benefits will be paid to the business.
For further clarification, please post your concerns!
