Gather Your Key Person Insurance Documents Before You Apply

The main documents needed for a key person insurance application fall into four groups: business financial records, ownership and authority papers, the insured person’s details, and any buy-sell contracts. The insurer uses them to review the application. Key person insurance is a policy a business owns on someone whose work or leadership it depends on. The Insurance Information Institute explains that this coverage helps a company with financial losses if a key employee dies or becomes disabled. This guide walks through what to gather first, for owners in Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville.

Why the insurer asks for records before a key person policy is issued

The insurer asks for records so underwriting can check the application and the business’s reason for the coverage. Underwriting decides whether the policy is issued. Issue depends on the records you send and on the health answers the insured gives. Health questions are required, and issue may depend on insurability. Complete records help the file move forward, but they do not guarantee acceptance. The licensed agent handles the application itself. Your records support that application and give the agent what the insurer needs to review it.

Who owns the policy, who is the beneficiary, and how insurable interest is shown

In most key person cases, the business owns the policy and is named as beneficiary. The insured is a person the business relies on. Florida law says a business entity has an insurable interest in the life, body and health of any owners, directors, officers, partners, and managers of the business entity or any affiliate or subsidiary of the business entity, or key employees or key persons of the business entity or affiliate or subsidiary, if consent is obtained in writing from the key employees or persons before the insurance is purchased. That interest depends on written consent from the key person before the insurance is bought, as Fla. Stat. § 627.404 states. The statute also says the insurable interest need not exist after the coverage starts.

To show reliance, gather an organization chart, the insured’s title and duties, and a summary of revenue or client relationships tied to that person. The policy amount should match the business’s financial exposure. If the amount requested looks far larger than the role’s value to the company, expect questions. Keep the numbers in your file consistent with the amount you request.

Business financial records the insurer typically requests

Insurers often ask for several years of financial statements and business tax returns. Statements usually include a balance sheet, an income statement and a cash flow statement. Add a current debt schedule that lists major loans and any personal guarantees tied to the business. The insurer may also ask for interim or year-to-date statements if the most recent year-end is older.

Year-end figures should match the tax returns. Unexplained differences slow review. For a Florida corporation, Fla. Stat. § 607.1601 requires the company to keep annual financial statements for its last 3 fiscal years. It also requires accounting records that allow those statements to be prepared. Keeping those records in order makes the file easier to build.

Ownership, entity and authorization documents

The insurer needs proof of who owns the business and who can approve the purchase. For a corporation, gather the articles, bylaws and any amendments. For an LLC, gather the articles of organization and the operating agreement.

Add an ownership ledger that shows each owner’s percentage and the date each interest was issued or transferred. Include a board or member resolution, or written consent, that authorizes the company to apply for the policy, own it and pay the premiums. The resolution should name the insured, the policy amount, and the business as owner and beneficiary. That way, the document matches the application.

Insured person details and the signatures the application needs

The application needs the insured’s full legal name, date of birth, occupation, title, employment start date and a short description of duties. Add compensation records such as salary, bonus and distribution history. These show the value the business places on the role.

Health questions are required. The insured must answer them fully and accurately, and issue may depend on insurability. Florida law also requires that the insured, having legal capacity, apply for or consent in writing to the contract on or before it is made. The same statute bars a business from retaliating against a key person who refuses consent. Expect the insured to sign the consent or application section. The company signs as owner and applicant. Missing signatures are a common reason a file comes back.

Buy-sell agreement and related contracts to gather

When a buy-sell agreement is in place, the insurer may ask to see it. The agreement’s funding terms shape how the coverage is structured. Gather the signed agreement, the valuation method, any appraisal or formula, the events that trigger a purchase (such as death, disability or departure), and the purchase price terms.

Also gather any loan agreements, key employee agreements or shareholder agreements that name the insured or require life coverage. Under Fla. Stat. § 607.0732, a shareholder agreement that meets that section is effective among the shareholders and the corporation. The owners set these terms. The insurer reviews them only to understand the funding.

What the CPA team prepares to organize the file

Our CPA team can reconcile financial statements to tax returns, summarize owner and officer pay, and build a schedule of company debts and guarantees. We can also show how premium payments fit into the company’s cash flow, using the company’s actual figures. The goal is a file that matches itself.

If the policy is employer-owned, the policyholder may have federal filing and recordkeeping duties. IRC § 6039I requires a policyholder that owns employer-owned life insurance contracts issued after the section was enacted to file a return each year showing the number of employees, the number insured, the total amount of insurance in force, the policyholder’s name, address, taxpayer identification number and type of business, and whether it has valid consent for each insured employee (or the number of insured employees without consent). It also requires records that show whether the rules are met. Accounting and tax services are provided by the CPA firm. Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice. Fees are set out in writing before any work begins.

Common gaps that slow review and how to close them

The most common gaps are figures that don’t match, missing ownership transfers, an outdated buy-sell valuation, and an incomplete health history for the insured. Each one sends the file back for more information. Check these items before you send anything.

Keep one indexed folder with dated copies of every record. A folder like this makes it easier to answer follow-up requests. Make sure the insured’s answers are accurate and complete. Issue depends on the application as submitted, so any error can affect the file.

Talk through your file before you apply

If your company depends on one owner or manager, the records may be spread across your accountant, your operating agreement and your HR files. Pulling them together before the application goes in saves time and reduces mismatches. Contact NR CPAs & Business Advisors to set up a coverage review of your records and any buy-sell terms.

Frequently asked questions