Plan Ahead to Protect Your Business and Your Loved Ones

Key person insurance for an accounting firm is life insurance the firm owns on a partner or owner whose work holds the practice together. If that person dies, the policy pays the business. This page explains what the coverage is, what the money can fund, and how a coverage review starts. Your firm’s facts shape the final design.

What Key Person Insurance Is and Who It Fits

Key person insurance is life insurance a business owns on a key employee, with the business named as beneficiary. The Insurance Information Institute says it compensates a business for financial losses caused by a key employee’s death or disability.

In an accounting firm, the key person is often a managing partner, principal or owner who holds client relationships or carries a large share of revenue. Losing that person can disrupt billing, staffing and client trust at the same time.

A business may insure an owner, partner, officer or key employee only if that person gives written consent before the policy is bought. The business may not retaliate against someone who says no (Fla. Stat. § 627.404).

Structure follows the entity type. In a partnership or LLC, the firm usually owns the policy. A sole proprietorship has no separate owner apart from the owner, so planning centers on personal coverage and a succession plan.

Nischay Rawal is acting as the licensed insurance agent on this page. Florida requires an agent to be licensed and appointed before acting as one (Fla. Stat. § 626.112). Insurance is offered by the licensed agent, separately from the accounting practice.

What the Policy Covers and What the Proceeds Can Fund

The death benefit goes to the business, and the firm decides how to spend it. That gives the firm flexibility, but it is not a promise to replace any specific loss.

Common uses tied to accounting work include:

• Recruiting and training a replacement partner or senior staff member
• Handing off client files and transition work
• Keeping engagement work on track during busy filing seasons
• Covering fixed costs while the firm adjusts to the loss

Term life insurance covers a set period. Whole life insurance lasts for the insured’s life and can build cash value. Cash value and policy loans affect how the policy works over time. The NAIC Life Insurance Buyer’s Guide explains the difference between term and permanent coverage, plus riders and questions to ask.

Florida also makes a life policy incontestable after two years from its issue date, during the insured’s lifetime, except for nonpayment of premiums and, at the insurer’s option, provisions relating to disability benefits and additional insurance specifically against death by accident or accidental means (Fla. Stat. § 627.455).

Funding a Buy-Sell Agreement Between Partners

A buy-sell agreement sets how a partner’s ownership is bought when that partner leaves, dies or becomes disabled. Life insurance can supply the cash for that purchase.

Florida law also sets a buyout rule for partnerships. When a partner leaves without dissolving the firm, the partnership must buy that interest. The price is based on the greater of liquidation value or going-concern value, with interest from the departure date to payment (Fla. Stat. § 620.8701).

Two common structures work differently:

• Cross-purchase: each partner owns a policy on the others and uses the proceeds to buy a departing or deceased partner’s share.
• Entity redemption: the firm owns the policies and uses the proceeds to buy back the share.

Partners often differ in age, health and ownership percentage. Those differences change the cost and the policy each partner needs. Make the structure decision with the firm’s attorney and CPA before any policy is issued.

Premiums, Tax Treatment and What Drives Cost

Premium cost is shaped by the insured’s age, health history, coverage amount and policy design. No single figure applies to every firm.

Other cost drivers include:

• Term or permanent policy design
• Riders and renewal terms
• The insurer’s underwriting decision for the insured

Our team confirms the tax treatment of premiums during the coverage review, based on the firm’s entity type. Federal law also limits deductions tied to certain borrowing for life insurance (26 U.S.C. § 264).

Commission rules apply too. A CPA firm that accepts a commission on a product sold to a client must disclose that fact to the client in writing (Fla. Stat. § 473.3205). The firm offers no rebates or inducements with this coverage.

How the Process Works, Step by Step

The process starts with a coverage review and moves through design, application and policy delivery.

1. Coverage review. Our team reviews the firm’s ownership structure, the key person’s role, any partner agreement and what the coverage must do.
2. Design. We compare term and whole life options. Guaranteed and non-guaranteed values are shown separately where they apply.
3. Application and underwriting. Health questions are required, and issue may turn on insurability. The timeline varies by insurer and by the insured’s history.
4. Delivery and yearly review. We walk through the policy and review it each year as partners, ownership or revenue change.

Written consent from the insured comes before the policy is bought, as Florida law requires.

Why NR CPAs & Business Advisors and Your Next Step

NR CPAs & Business Advisors is a Miami CPA firm. It helps families, professionals and business owners choose and buy life insurance, including Indian-American households and business owners across the United States.

The firm brings a CPA’s view of tax and cash flow to each coverage design. Insurance is offered through the licensed agent, separately from the accounting practice.

A partner’s illness, a planned retirement or a succession question is often where a firm starts looking at this coverage. If that is where you are, contact us to set up a coverage review and talk through how to protect your loved ones and the firm.

Frequently Asked Questions