The death of a key person can result in serious consequences for the business. Credit could be substantially impaired, or even worse, loans would be called if the key person was a co-signer. The loss of that “intangible asset value” represented by the key person may be greater than that caused by a fire, flood, or other catastrophe.

When insuring a loss through death, Key Person Life Insurance can provide an important source of revenue replacement. Further, the insurance can be designed to accumulate reserves that may be used ultimately for retirement, a termination replacement, or the retraining of successors.

SPLIT DOLLAR PLANS

Many companies design their Key Person coverage as a Split Dollar Plan which has the potential for enhanced tax treatment under the 2017 Tax Act. This is an arrangement between an employer and an employee to share the costs and benefits of a life insurance policy. These plans are widely used in gift and estate planning and can be an important part of the compensation package for key executives.