Protect Your Business When a Key Person Is Lost

Key Person Business Insurance in Florida: Term vs. Whole Life

Key person business insurance pays the business a death benefit if a key employee dies, and pays disability benefits only where the policy provides them. The business owns the policy, pays the premiums, and receives the benefit. Term coverage lasts for a set period and usually costs less at the start. Whole life lasts for the insured’s life and builds cash value, but it needs closer review. The right choice depends on the business’s goals, cash flow, and tax position.

Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice of NR CPAs & Business Advisors.

What Key Person Insurance Is and Who Needs It

Key person business insurance compensates a business for financial losses caused by the death or disability of a key employee, according to the Insurance Information Institute’s guide to life insurance for key employees.

A key person is someone the company would struggle to replace. That might be a founder, a top salesperson, a lead engineer, or a partner who brings in major clients.

Business owners may consider this coverage when one person carries much of the revenue.

How the Policy Works

• Owner: The business owns the policy.
• Premiums: The business pays them.
• Beneficiary: The business receives the death benefit.

The business can use the payment to cover lost income, hire and train a replacement, or repay business debt. Disability coverage varies by policy, so the policy’s wording controls.

Florida Consent Rules

Under Florida’s insurable interest statute, Fla. Stat. § 627.404, a business can insure a key employee only after that employee gives written consent before the policy is bought. The business may not retaliate against an employee who says no.

Term vs. Whole Life: How to Compare

Term life pays only if the insured dies within a set period. Whole life lasts for the insured’s whole life, as long as the policy’s requirements are met, and it builds cash value.

Term Life for Key Person Coverage

Term fits when the business needs cover for a defined window. Examples include the years before a key employee retires or until a major loan is repaid. When the term ends, the coverage ends. There is no cash value to keep.

Whole Life for Key Person Coverage

Whole life stays in force longer and has a cash value part. Guaranteed and non-guaranteed values should be reviewed separately. Dividends, where a policy pays them, are not guaranteed.

Policy loans need care. Under Fla. Stat. § 627.458, a policy other than term coverage must contain a provision that, after it has a cash surrender value and while no premium is in default, the insurer will advance a loan on proper assignment or pledge of the policy. The policy must also reserve to the insurer the right to defer granting a loan, other than for the payment of any premium to the insurer, for 6 months after application. Fla. Stat. § 627.458 reads: “The loan value of the policy shall be at least equal to the cash surrender value at the end of the then-current policy year, except that the insurer may deduct, either from such loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining such cash surrender value, including any interest then accrued but not due, any unpaid balance of the premium for the current policy year, and interest on the loan to the end of the current policy year.” It does not apply to term policies or to term insurance benefits provided by riders or supplemental policy provisions. If unpaid loan balances and interest reach the loan value, the policy can terminate after at least 30 days’ notice.

The Tax Picture a CPA Reviews

Premiums Are Generally Not Deductible

Under IRC § 264, no deduction is allowed for premiums on any life insurance policy, or endowment or annuity contract, if the taxpayer is directly or indirectly a beneficiary under the policy or contract. In a key person policy, the business is the beneficiary. Compare the after-tax cost of each option, not the premium alone.

Death Benefits Are Generally Excluded From Income

The IRS guidance on life insurance proceeds explains that death benefits are generally excluded from gross income. Interest paid on proceeds held by the insurer is taxable.

Annual Filing for Employer-Owned Policies

Under IRC § 6039I, every applicable policyholder owning one or more employer-owned life insurance contracts issued after the date of the enactment of this section must file a return, at such time and in such manner as the Secretary prescribes by regulations, for each year such contracts are owned. The return must show the number of employees of the applicable policyholder at the end of the year, the number of those employees insured under such contracts at the end of the year, the total amount of insurance in force at the end of the year under such contracts, the name, address, and taxpayer identification number of the applicable policyholder and the type of business it is engaged in, and that the applicable policyholder has a valid consent for each insured employee (or, if not all consents are obtained, the number of insured employees for whom consent was not obtained).

Estate and Buy-Sell Planning

Estate Inclusion

Under IRC § 2042, the value of the gross estate includes the value of all property receivable by the executor, to the extent of the amount receivable by the executor as insurance under policies on the life of the decedent. It also includes proceeds payable to other beneficiaries when the decedent held incidents of ownership at death. IRC § 2042 reads: “For purposes of the preceding sentence, the term “incident of ownership” includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of the value of the policy immediately before the death of the decedent.”

This matters when a policy changes hands.

Buy-Sell Funding

Under Fla. Stat. § 627.404, a party to a contract to buy or sell a business interest has an insurable interest in each other party’s life for that contract only. Owners often use this rule to fund a buy-sell agreement. Each owner’s policy on another owner can provide the funds for a purchase at death.

2026 Figures

For 2026, the IRS states the basic exclusion amount for estate and gift tax is $15,000,000. The IRS gift tax FAQ lists the gift tax annual exclusion as $19,000 per donee for 2026. For a spouse who is not a U.S. citizen, the first $194,000 of gifts is excluded in 2026, according to the same revenue procedure.

Florida and NRI Considerations

Florida’s written-consent rule applies before any key employee policy is bought. Once a policy is issued, Florida law requires that it become incontestable after it has been in force during the lifetime of the insured for 2 years from its date of issue, except for nonpayment of premiums and, at the insurer’s option, provisions on disability benefits and additional insurance against accidental death, as set out in Fla. Stat. § 627.455.

NR CPAs & Business Advisors, based in Miami, works with families, professionals and business owners in Florida, and Nischay Rawal acts as the licensed insurance agent, separately from the accounting practice. That includes Indian-American households and NRI clients. Citizenship, residence and where a business is owned can change how the U.S. estate and tax rules apply to a case.

How the Process Works

1. Coverage review: Share your business structure, your key people, and your goals.
2. Need mapping: Identify revenue at risk, business debt, and any buy-sell needs.
3. Side-by-side comparison: Review term and whole life with guaranteed and non-guaranteed values shown separately, plus the after-tax cost.
4. Written consent: Each key employee signs consent before the policy is bought.
5. Application: Health questions are part of the application, and issue may depend on insurability.
6. After issue: Track the two-year incontestability period, the policy’s premium schedule, and any annual tax filing.

Timing varies by insurer and underwriting.

Why Work With NR CPAs & Business Advisors

• NR CPAs & Business Advisors is a Miami CPA firm.
• Nischay Rawal is the licensed insurance agent for these policies.
• Our team of support staff helps with the firm’s administrative work.
• We review insurance with a CPA’s view of tax and cash flow.
• We work with business owners in Florida, including Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa and Jacksonville.

Frequently Asked Questions