{"id":10723,"date":"2026-11-04T04:27:33","date_gmt":"2026-11-04T04:27:33","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-premium-and-cash-value-bookkeeping\/"},"modified":"2026-11-10T17:21:09","modified_gmt":"2026-11-10T17:21:09","slug":"key-person-insurance-premium-and-cash-value-bookkeeping","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-premium-and-cash-value-bookkeeping\/","title":{"rendered":"Key Person Insurance Premium Journal Entry Guide"},"content":{"rendered":"\n
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Key Person Insurance | Florida<\/p>

Key Person Insurance Premium Journal Entries, Explained Plainly<\/h1>

How a business typically records key person insurance premiums, and how term and whole life policies can differ on the books. NR CPAs & Business Advisors helps Florida business owners understand the numbers behind their coverage.<\/p>

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By Nischay Rawal \u00b7 Published November 3, 2026<\/p>\n\n

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A key person insurance premium is usually split in two. One part pays for the death protection and expenses. The other part builds the policy’s cash surrender value. Only the protection part is typically recorded as an expense. This guide shows how to make the split and record it, using the insurer’s annual statement as the source.<\/p>\n

What a key person policy means for your books<\/h2>\n

A key person policy is a company asset when the business owns the policy, pays the premium, and is the beneficiary. Key person life insurance pays a business for financial losses caused by the death or disability of a key employee, according to the Insurance Information Institute<\/a>. Because the company holds the policy, the premium is a business entry, not a personal expense of an owner.<\/p>\n

Ownership and beneficiary decide the accounting. If an employee or a family member owns the policy, the entries change. The examples below assume the company is both owner and beneficiary. Other structures should be reviewed before anything is posted.<\/p>\n

Florida law adds a consent step. Under Fla. Stat. \u00a7 627.404<\/a>, a business can insure a key person only if that person gives written consent before the insurance is bought. The business may not retaliate against a key person who says no. Keep the signed consent in the policy file. For the coverage basics, read our key person insurance guide<\/a>.<\/p>\n\n

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If a key person premium sits in your books unsplit, our team can walk you through a coverage review; insurance is offered separately from our accounting practice. Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.<\/p>

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Splitting each premium into expense and cash value<\/h2>\n

Split each premium using the insurer’s annual statement, not an estimate. A permanent policy premium covers three things: the cost of death protection, the insurer’s expense charges, and the amount credited to cash value. The annual statement shows how the year’s premiums were applied. Use those figures for the split.<\/p>\n

Here are the terms in plain words. The cost of insurance is the charge for the death protection. Expense charges cover the insurer’s cost of running the policy. The cash value portion stays in the policy. Match your balance sheet figure to that definition and to the statement.<\/p>\n

Show guaranteed and non-guaranteed values on separate lines. Guaranteed amounts are the ones the contract promises. Non-guaranteed amounts depend on the insurer’s actual results. Dividends, where a policy pays them, are not guaranteed. Do not add projected growth from an illustration to the books.<\/p>\n

The key person insurance premium journal entry<\/h2>\n

Debit cash surrender value for the policy’s cash value component. Debit life insurance expense for the protection portion.<\/p>\n\n

\n\n\n\n\n
Account<\/th>\nDebit<\/th>\nCredit<\/th>\n<\/tr>\n<\/thead>\n
For a whole life policy, the $1,000 credit to cash is matched by a debit to cash surrender value for the year’s increase in cash value plus a debit to life insurance expense for the remainder, and the two debits together total $1,000.<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/figure>\n\n

Only the protection and expense portion usually goes to expense. The rest is an asset. Your accounting framework and the insurer’s statement decide the final entry, so confirm both before posting. The split varies with policy design, so the amounts depend on the facts of your policy.<\/p>\n

Its premium is usually booked to an employee benefits line. Key person premiums do not belong there. Use the split described above.<\/p>\n

Recording cash value growth and annual statements<\/h2>\n

Record the year-end change in cash surrender value from the insurer’s statement. Reconcile it to the balance sheet each period. Compare the new cash value with the prior year’s ledger balance, post the difference as the year’s increase, and confirm the totals match.<\/p>\n

Illustrations show what cash value could look like at future dates. Those projections are not a return the company is promised. Record the actual figures on the statement, not the projected ones.<\/p>\n

Use this annual checklist:<\/p>\n