Key Person Insurance for Restaurant Owners in Florida

Key person insurance for restaurant owners is life insurance a business buys on the person it would be hard to replace. If that person dies, the policy pays the business, not the family. This page explains what the policy does, term and whole life options, consent rules, and the tax questions a CPA can help you frame. Nischay Rawal acts as a licensed insurance agent. Insurance is offered by the licensed agent, separately from the accounting practice of NR CPAs & Business Advisors, a Miami CPA firm.

What key person insurance is and who it fits

Key person insurance is a life insurance policy that a business owns on a key person. It pays the business if that person dies.

The Insurance Information Institute says key person insurance compensates a business for financial losses caused by a key employee’s death or disability.

Restaurants often depend on one or two people. A chef may hold the recipes and supplier relationships. An owner may hold the landlord and lender relationships. A general manager may run daily operations and compliance tasks. When one of them is gone, the business can face a sudden gap.

Key person insurance is different from personal life insurance. Personal coverage pays your family. Key person coverage pays the business, which owns the policy and is the beneficiary.

The insured person must agree. Under Florida Statutes § 627.404, a business entity has an insurable interest in the life, body, and health of its key employees or key persons if consent is obtained in writing from them before the insurance is purchased, and for purposes of that section, the signature of the proposed insured, having capacity to contract, on the application for insurance constitutes his or her written consent. See Fla. Stat. § 627.404.

What the policy pays and how the business can use it

The death benefit goes to the business. The business decides how to use the money.

Common uses include:

• Covering lost sales while the business finds and trains a replacement
• Paying down a business loan or lease obligation
• Steadying cash flow during the transition
• Keeping vendors, payroll and rent on schedule while the business adjusts

Every policy has limits. Exclusions vary by policy, and the policy must be in force at the time of death. A clause that makes a policy hard to contest after a set period still lets the insurer rely on provisions that exclude or restrict coverage. See Fla. Stat. § 627.463.

Key person coverage requires health questions. Issue may depend on the insured person’s insurability.

Term or whole life: which fits your business?

Term life covers a set number of years. Whole life covers the insured’s lifetime and builds cash value. The NAIC Life Insurance Buyer’s Guide explains the difference between term and permanent coverage.

Term coverage often matches a loan term or the years the key person is most critical to the business.

Whole life has a few features to understand:

• Cash value is shown separately from guaranteed values.
• Dividends, where a policy pays them, are not guaranteed.
• A policy loan may be available on a policy with cash surrender value. Florida law says the loan provision does not apply to term policies. See Fla. Stat. § 627.458.

Neither type is right for every restaurant. The better fit depends on your debt, budget, time horizon and succession plan. Any specific policy we discuss is identified by its insurer and policy form number.

How much coverage to consider

Start with the cash the business would need in the first six to twelve months after a loss. Build a simple worksheet:

1. Sales tied to that person’s work
2. Cost to find, hire and train a replacement
3. Loan payments and lease obligations
4. Operating cash for payroll, vendors and rent during the transition

Add the totals. That number is a planning estimate, not a promise of any payout.

Check the figure against your financial statements and debt schedule. Your CPA can help tie these numbers to your books. The final amount depends on your business’s own numbers and plans.

Tax, ownership and consent: a CPA’s view

The IRC § 101 death benefits rules include a transfer-for-value limit when a policy changes hands for value.

Interest on borrowing tied to these policies follows its own rule. Except as provided in subsection (e), federal law denies a deduction for interest on indebtedness connected to life insurance a taxpayer owns on an individual; paragraph (4) of section 264 applies only to contracts purchased after June 20, 1986. In IRC § 101(a)(2), the transfer-for-value rule, the term “other amounts” includes interest paid or accrued by the transferee on indebtedness with respect to the contract when that interest is not allowable as a deduction by reason of section 264(a)(4). See IRC § 264 interest rules.

Employer-owned policies also carry filing and consent duties. IRC § 6039I requires a return and records that show whether valid consent is on file for each insured employee.

Our team reviews these points alongside your books, debt and cash flow. Tax observations are not a promise of any particular tax result. Insurance is offered by the licensed agent, separately from the accounting practice.

How the process works, step by step

The process starts with a coverage review and moves through six steps.

1. Coverage review. You meet with the licensed agent to discuss the key person’s role, revenue, debt and ownership.
2. Information gathering. You provide financial statements, loan and lease documents, and details about the person’s role.
3. Written consent and application. The key person gives written consent before the policy is bought. You then complete the application and health questions.
4. Underwriting. The insurer reviews the file. Timing varies by insurer and by case.
5. Policy delivery. You review the policy, its terms and its limits before you decide.
6. Ongoing review. Revisit the coverage when revenue, debt or ownership changes.

Why NR CPAs & Business Advisors

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

Our team brings a CPA’s view of tax and cash flow to life insurance decisions. Nischay Rawal acts as the licensed insurance agent on the policies discussed.

The firm works with business owners in Florida, including those in Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville. Insurance is offered by the licensed agent, separately from the accounting practice.

Frequently asked questions