Key Employee Life Insurance Checklist

Read our print-friendly PDF version 

The purpose of key employee life insurance coverage is to help indemnify a business for the loss of a key employee’s skills and experience in the event of the death of that person. Death benefits or cash values may be used to help recruit and train a replacement, to pay business debt, or to maintain the business’s credit and financial standing during a transition of management. ¹

The following checklist details the items that are generally needed to properly complete a key employee life insurance arrangement.

Step 1
Identify key employee(s).

Parties Involved
Business owner, licensed financial professional

Step 2
Determine the face amount of life insurance coverage needed on each key employee (proposed insured) and select the type of policy.

Parties Involved
Business owner, licensed financial professional

Step 3
Execute a board resolution expressing the business’s intention to establish a key employee insurance arrangement and authorizing payment of the stipulated premium.

Parties Involved
Business owner, legal counsel

Step 4
Complete a life insurance application with the key employee as the proposed insured and the business as the owner, beneficiary and premium payor.

Parties Involved
Key employee(s), business owner, licensed financial professional

Step 5
Prior to policy issue, execute employer-owned life insurance notice and consent documentation as required under Internal Revenue Code § 101(j). This documentation should be retained by the business to prove compliance.

Parties Involved
Business owner, legal counsel

Step 6
Annually report with the business tax return the data requested for employer-owned life insurance for policies issued after August 17, 2006.

Parties Involved
Business owner, business’s tax preparer

¹ Life insurance policy cash values are accessed through withdrawals and policy loans. Loans are at interest. Loans and withdrawals cause a reduction in cash values and death benefits, may affect any guarantees against lapse, and may have tax consequences.