Key Person Life Insurance Application: Step by Step

Key person life insurance covers a business against the loss of an owner, officer, or key employee. This page explains the key person life insurance application in Florida, from the first decision to the issued policy. It is written for business owners and for family members who help them.

What Steps Does a Business in Florida Follow to Apply for Key Person Life Insurance, From Application Through Policy Issuance?

A Florida business names the key person, decides who owns and receives the policy, and completes the insurer’s application. The insurer then reviews the request through underwriting, and the issued policy arrives for review.

A key person is an owner, officer, or employee whose death or long-term disability would cause the business a financial loss. Key person coverage is life insurance a business may own on the life of an owner or key employee. Think of a founder who runs sales, or a partner who holds the main client relationships.

Nischay Rawal, who is licensed in Florida, is the responsible insurance agent for this page. Insurance is offered by the licensed agent, separately from the accounting practice. When soliciting or selling insurance products, Florida law requires agents to say they act as insurance agents and to name the insurer (Fla. Stat. § 626.9531).

Before Applying: Confirm the Insured, the Policy Owner, and the Beneficiary

In a typical key person arrangement, the business owns the policy and is the beneficiary. The key person is the insured. The business pays the premiums and receives the death benefit, so name these three roles clearly before you apply.

Florida lets a business buy coverage on its owners, directors, officers, partners, managers, and key employees, if consent is obtained in writing from the key employees or persons before the insurance is purchased. A business that buys insurance on a person’s life generally needs an insurable interest in that person. Florida’s insurable-interest statute, Fla. Stat. § 627.404, gives a business entity, or an affiliate or subsidiary of it, an insurable interest in the owners, directors, officers, partners and managers, and in key employees or key persons, as long as the key employees or persons consent in writing before the coverage is purchased.

How a sole proprietor fits depends on the facts, so contact this firm to discuss that question before you apply. Our sole proprietor key person guide covers that structure in more detail.

Ownership and beneficiary choices should match the business’s written plan. Changing them later can require insurer forms and can carry tax effects, so review them first.

What the Application and Underwriting Ask For

The application asks about the insured’s age, role, pay, and the coverage amount. It also includes health questions. The insurer’s underwriting then decides whether the policy is issued and at what amount.

Expect questions about the insured’s occupation, role in the business, and compensation. You’ll also state the coverage amount and why the business needs it. The insurer may ask for a medical exam or a physician statement. A fully underwritten policy always includes health questions, and issue may depend on insurability.

Florida requires the insured’s written consent on or before the contract is made. For a proposed insured who has legal capacity to contract, signing the application constitutes written consent to the contract and its terms. For a key employee, the business must get written consent before buying. It may not retaliate against someone who refuses.

Accuracy matters. If the insured’s age was misstated, the benefit is set at what the premium would have bought at the correct age (Fla. Stat. § 627.456). Gather financial statements, tax returns, an ownership summary, and a short written statement of need.

From Underwriting to Policy Issuance and Post-Issue Review

After underwriting, the insurer makes an offer or a decision. You accept, pay the first premium, and the insurer delivers the issued policy. Then you check that policy against your application.

Timing varies with the insurer and with any follow-up questions underwriting raises. Keep the complete application and every change made to it. Ask the insurer in writing about anything you don’t understand.

Check the issued policy closely. Confirm the insured’s name, the owner, the beneficiary, the face amount, and the policy form number. Any mismatch is easier to fix early.

Florida requires life policies to become incontestable 2 years from issue during the insured’s lifetime, except for nonpayment of premiums and, at the insurer’s option, provisions on disability benefits and additional accidental death insurance (Fla. Stat. § 627.455). That clause does not stop defenses based on policy exclusions or restrictions (Fla. Stat. § 627.463).

Tax and Cash-Flow Points a Florida Business Should Raise Before It Applies

Premiums on a policy where the business is the beneficiary are generally not deductible. Death benefits are generally excluded from gross income, subject to exceptions. So plan cash flow for the premium, not for a tax deduction.

IRC § 264(a)(1) bars a deduction for premiums on a life policy when the taxpayer is directly or indirectly a beneficiary (IRC § 264). A key person policy usually names the business as beneficiary, so the premium is typically a cash cost.

Death proceeds are generally excluded under 26 U.S.C. § 101(a). Applicable policyholders that own employer-owned life insurance contracts issued after the date of enactment of IRC § 6039I may need to file an annual return under IRC § 6039I.

Entity type, ownership, and cash value all affect how these rules apply. Tax rules change, so start with a current review. Our team can walk through these points during a coverage review.

Next Step: A Coverage Review With Our Team

A coverage review with our team is the first step to fit these application steps to your business. We use that meeting to review your situation and the questions you bring. Insurance is offered by a licensed insurance agent, separately from our accounting practice.

A business typically reviews key person coverage when an owner or key employee joins or leaves the company, or when ownership changes. You may be trying to understand the application while running the rest of the business. You don’t have to work through the steps alone.

Contact us for a coverage review of your situation.

Frequently Asked Questions