Corporate-Owned Life Insurance
Companies that buy corporate-owned life insurance can insure a key employee in order to insulate themselves against any revenue loss if that employee should pass away. While these policies protect the company from unforeseen losses, individual employees are not eligible for corporate-owned life insurance and must purchase their own group or personal life insurance policies to protect their families and their assets.
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UPDATED: Jul 28, 2021
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- A corporate-owned life insurance policy allows a company to insure a key employee
- The death benefits of these policies payout to the company, not the named insured’s family
- Employees who are the named insured in a corporate-owned life insurance policy should still have their own life insurance policy
If you’re a business owner looking for life insurance, you may have stumbled upon ads for affordable corporate-owned life insurance, also known as key person insurance.
Corporate-owned life insurance is purchased by a company that wishes to insure a high-ranking employee like an executive or a manager.
An individual cannot buy corporate-owned life insurance. That task falls to the business entity, as does the responsibility of paying the premiums on the plan. The business is also the named beneficiary on the policy and will receive the death benefit if the insured employee passes away.
Whether you need corporate-owned life insurance quotes or want to get estimates for yourself, you can find free quotes from the comfort of your home. Enter your ZIP code to compare nearby life insurance companies today.
How does corporate-owned life insurance work?
When the insured individual on a life insurance policy dies, the NAIC explains that the death benefit of that policy would be given to a named beneficiary. Usually, that named beneficiary is an individual. That is not the case with a corporate-owned life insurance policy.
If an employee who is crucial to a company’s operations were to pass away while employed, the corporate-owned life insurance policy would pay out a death benefit that would allow the company to buy time to replace that employee.
The added protection against revenue loss makes paying the corporate-owned life insurance rates worth every penny, especially if you are in charge of a small business, but that isn’t the only benefit to having a corporate-owned life insurance policy in place.
Essentially, if a businesses were to buy corporate-owned life insurance then it would be able to insulate itself against any lost revenue that resulted from the loss of the insured employee.
A corporate-owned life insurance policy should not be confused with the additional insurance coverage companies can offer to employees as part of a benefits package. If you need to buy life insurance to protect your assets and your family, shop around compare free life insurance quotes from multiple companies to get the best rates.
What is required to write a corporate-owned life insurance policy?
When inquiring after a corporate life insurance policy, the company will start by examining which corporate life insurance company is best for them before moving forward.
The company will then be required to inform any employee who is to be insured and gain their consent before writing up a policy. The company must also inform the employee of the policy’s terms.
After that, the insured employee will have to undertake a medical exam to be accepted for the coverage.
Can the company borrow against the policy?
Just as it would be with any other whole life insurance policy, the named beneficiary, in this case, the company, can access the policy’s cash value. This means that the company can also withdraw or borrow against those funds.
Are corporate-owned life insurance policies taxable?
If you’re a business owner you may be wondering, “Is corporate-owned life insurance taxable?” The answer is yes. A tax-free death benefit is one of the great assets of a corporate-owned life insurance policy.
But are corporate-owned life insurance premiums deductible? Unfortunately no. While the premiums paid on a corporate life insurance policy are non-deductible, the rewards that come with this type of policy, including the tax-deferred cash values, far outweigh this minor inconvenience.
Bear in mind, that for a company to access corporate-owned life insurance benefits, the company is limited to the percentage of employees it can insure. Only the top 35% of eligible employees may be insured by such policies.
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What are the different types of corporate-owned life insurance?
There are two types of corporate-owned life insurance policies:
- General accounts
- Separate accounts
Each of these policies has its own sets of rules and unique advantages. Learn more about the different types of corporate-owned life insurance below before you buy.
When operating within the boundaries of a general account, the insurance company will invest the policy’s cash value into a company’s general portfolio. In this scenario, it is the insurance company that bears the burden of risk when it comes to investing these funds.
Unlike a general account, professional brokers take the lead within a separate account. The brokers utilize different investment options to invest the policy’s cash value. The policyholder is responsible for all investment risks.
What You Need to Know About Corporate-Owned Life Insurance
Corporate-owned life insurance policies come with advantages. A company can insure a key employee to not only protect itself from a loss of income if the employee passes away but can also borrow from the policy while the employee is still alive.
Of course, if you are not a business owner, a corporate-owned life insurance policy will not payout any of a death benefit to your loved ones or pay for any of your final expenses. Even if you are the named insured on a corporate life insurance policy, you should still purchase a personal life insurance policy so your family remains protected.
Don’t wait to compare life insurance quotes. Enter your ZIP code here to receive free quotes from affordable life insurance companies near you today.