{"id":10800,"date":"2026-11-04T07:30:24","date_gmt":"2026-11-04T07:30:24","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-checklist-employers\/"},"modified":"2026-11-06T08:41:55","modified_gmt":"2026-11-06T08:41:55","slug":"key-person-insurance-checklist-employers","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-checklist-employers\/","title":{"rendered":"Key Person Insurance Checklist for Employers | NR CPAs"},"content":{"rendered":"\n
<\/span>\"A
\n

Key Person Insurance | Florida Businesses<\/p>

Key Person Insurance Checklist for Employers<\/h1>

Work through the questions to answer before you buy key person coverage, then call us to set up a coverage review of your business.<\/p>

Call us today<\/a><\/div>
Call us today<\/a><\/div><\/div>\n<\/div><\/div>\n\n\n

By Nischay Rawal \u00b7 Published November 4, 2026<\/p>\n\n

\n\n\n

Before You Start: How to Use This Key Person Insurance Checklist<\/h2>\n

A key person insurance checklist for employers is a set of tests that shows whether a business should insure a key employee, and what it must do first. Work through the eight tests below for one named employee at a time.<\/p>\n

Key person insurance is a life or disability policy that a business buys on one of its employees. The business is the owner and the beneficiary. The Insurance Information Institute<\/a> says this coverage compensates a business for financial losses caused by a key employee’s death or disability.<\/p>\n

Each test has a yes\/no question, one line of explanation, and a “what to do next” step. Your answers shape the coverage decision. They don’t make it for you. Florida rules and federal tax rules both apply, so treat each employee as its own case.<\/p>\n

Insurance on this page is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice of NR CPAs & Business Advisors. Nischay Rawal is the responsible agent for this page.<\/p>\n\n

\n

If you've worked through these tests for a key employee and want to weigh coverage, contact our team to set up a coverage review. 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>

Schedule a coverage review<\/a><\/div>
Schedule a coverage review<\/a><\/div><\/div>\n<\/div>\n\n
\"Two<\/figure>\n

1. Is This Employee Really Key to the Business?<\/h2>\n

Yes if this person’s absence would seriously harm the business for several months. Key status can depend on position or compensation: under Fla. Stat. \u00a7 627.404<\/a>, a key employee or key person is an individual whose position or compensation is described in s. 101(j)(2)(A)(ii) of the Internal Revenue Code of 1986. A key person might hold the main client relationship, a skill no one else has, or a role a lender relies on.<\/p>\n

Seniority alone doesn’t make someone key. Ask what would stop working, and for how long, if this person were gone.<\/p>\n

If yes, move on to the revenue and replacement tests. If no, a policy may not be the right tool for this person. Keep this checklist for employees who pass this test.<\/p>\n

Note that the tax code uses its own definition. Under 26 U.S.C. \u00a7 264<\/a>, a key person means an officer or a 20-percent owner, with a limit on how many people can be treated that way. That tax test can differ from your business judgment.<\/p>\n

2. Can You Measure the Revenue or Profit at Risk?<\/h2>\n

Yes if you can put a dollar figure on the revenue, profit margin, or contracts that depend on this person. Also estimate how long recovery would take. Owners often skip this step and guess. A written figure gives you a starting point.<\/p>\n

Pull the numbers from your financial statements. Write down the source of each figure. Note your own estimate of how long the business would need to recover. Be clear about gaps. A rough estimate you can explain beats a confident number you can’t support.<\/p>\n

If yes, record the figures in writing for the coverage review. If no, keep working on the loss estimate before you choose any amount. The right amount depends on the facts of your business. The insurer will also ask for financial details, so gather them now.<\/p>\n

3. What Would It Cost to Replace the Person, and Over What Period?<\/h2>\n

Yes if you can list the costs of recruiting, training, and bringing a replacement up to speed. Include temporary staffing and interim leadership costs. Replacement cost is separate from lost revenue. Many owners think of it first, but it is only one part of the picture.<\/p>\n

Total the costs. Compare the total with the revenue estimate from test 2. Note how long each cost would run. Interim help may last weeks, while ramp-up may take much longer.<\/p>\n

If yes, total the costs and compare them with test 2. If no, find your largest cost category and estimate it first. The coverage amount is a business decision. You’ll talk it through with the licensed agent at the coverage review. This checklist doesn’t set it.<\/p>\n

4. Do You Have Insurable Interest and the Employee’s Written Consent?<\/h2>\n

Yes if the business has a financial interest in this employee’s continued life and work, and the employee has agreed in writing to be insured. Under Florida law, a business entity has an insurable interest in the life of a key employee or key person when that person gives written consent before the insurance is purchased (Fla. Stat. \u00a7 627.404<\/a>).<\/p>\n

Under Fla. Stat. \u00a7 627.404<\/a>, a business entity has an insurable interest in key employees or key persons if written consent is obtained before the insurance is purchased. The business may not retaliate against an employee who refuses consent.<\/p>\n

Florida law adds a consent step. Fla. Stat. \u00a7 627.404<\/a> reads: “(5) A contract of insurance upon a person, other than a policy of prepaid funeral contract; group life insurance; or group or blanket accident, health, or disability insurance, may not be carried out unless, on or before the time of entering into such contract, the person insured, having legal capacity to contract, applies for or consents in writing to the contract and its terms, except that any person having an insurable interest in the life of a minor younger than 15 years of age or any person upon whom a minor younger than 15 years of age is dependent for support and maintenance may obtain a policy of insurance on the minor.”<\/p>\n

If yes, keep the signed consent in company records. If no, don’t apply yet. The insurer will ask for both the interest and the consent.<\/p>\n

5. Do Your Lenders, Investors, or Loan Covenants Require Coverage?<\/h2>\n

Yes if a loan agreement, credit line, or investor document asks for key person coverage, names the insured, or sets a minimum amount. A covenant can require coverage, an assignment to the lender, or proof of coverage. Your signed terms control.<\/p>\n

Read the wording line by line. List each requirement, including any assignment or notice duty. Check whether an amendment has added a requirement since you signed.<\/p>\n

If yes, bring the full list to the coverage review. If no, confirm in writing with the lender or investor that no requirement applies. A later amendment can add one. Don’t describe the lender’s terms beyond what the signed documents say.<\/p>\n\n

\n

Not sure what your next step is?<\/h3>

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>

Schedule a coverage review<\/a><\/div>
Schedule a coverage review<\/a><\/div><\/div>\n<\/div>\n

6. Who Must Approve the Purchase, and Who Signs the Board or Owner Resolution?<\/h2>\n

Yes if your governing documents require a board vote, member approval, or shareholder approval before the company buys a policy. A written resolution records who approved the purchase. It also names the covered employee, the owner, the beneficiary, and the officer who signs.<\/p>\n

Florida entity law sets who manages the business. Under Fla. Stat. \u00a7 605.0407<\/a>, an LLC is member-managed unless its operating agreement or articles say otherwise. For a corporation, a shareholder agreement<\/a> that meets Florida’s requirements can govern voting and management among shareholders.<\/p>\n

If yes, prepare the resolution with your company counsel or the person who keeps the entity’s records. If no, a sole owner may still want a written decision in the company file. Keep the resolution consistent with the owner and beneficiary named on the policy.<\/p>\n

7. Who Will Own the Policy, Who Is the Beneficiary, and How Are Premiums and Proceeds Treated for Tax?<\/h2>\n

Yes if the business is both owner and beneficiary, and you understand the tax treatment before you apply. The IRS states that life insurance death benefits are generally excluded from gross income. Interest paid on those proceeds is taxable when the insurer holds them under an agreement to pay interest, according to the IRS life insurance proceeds FAQ<\/a>.<\/p>\n

Employer-owned contracts also carry reporting duties. Under 26 U.S.C. \u00a7 6039I<\/a>, an applicable policyholder must file a yearly return. That return reports the number of employees, the number insured, the insurance in force, the name, address, and taxpayer identification number of the applicable policyholder and the type of business in which the policyholder is engaged, and whether valid consent exists for each insured employee. The policyholder must also keep records.<\/p>\n

If yes, confirm the owner, beneficiary, and tax treatment with a tax professional before the first premium is paid. If no, don’t assume a deduction or a tax result. The treatment depends on the facts and the company’s structure. Tax questions belong with a tax professional, while the insurance itself is offered by the licensed agent.<\/p>\n

8. Do You Also Need Key Person Disability Coverage, and Does the Policy Fit Your Buy-Sell or Succession Plan?<\/h2>\n

Yes if a long disability, rather than a death, would leave the business without this person’s work. Also yes if you have a buy-sell agreement or succession plan the policy should support. Key person disability coverage pays a benefit for a disability. A buy-sell agreement sets how an owner’s interest is valued and transferred.<\/p>\n

Florida law gives each individual party to a contract for the purchase or sale of an interest in a business entity an insurable interest in the other parties’ lives, but only for that contract. For an individual party to a buy-sell contract, that insurable interest is limited to the purpose of that contract. The policy and the agreement should match.<\/p>\n

If yes, list the disability and buy-sell terms and bring them to the coverage review. If no, a life policy alone can still be reviewed. Note the gap in writing so it isn’t lost.<\/p>\n\n

\"Hands<\/figure>\n

What to Do With Your Results: Bring Your Checklist to a Coverage Review<\/h2>\n

Summarize your answers in one table. Include the employee, key status, revenue and replacement figures, insurable interest and consent, lender requirements, the resolution signer, ownership and tax questions, and the disability and buy-sell fit. Bring that table to the review.<\/p>\n

A coverage review is the first meeting between you and the firm about one employee. Ask about fees before any work begins. Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice. Under Fla. Stat. \u00a7 626.9531<\/a>, agents must clearly tell prospective insureds that they act as insurance agents.<\/p>\n

Frequently Asked Questions<\/h3>
Is key person insurance<\/a> the same as a key person checklist?<\/summary>

No. The checklist is a set of tests you work through before buying a policy. Key person insurance is the policy itself.<\/p><\/details>

Does a business need written consent to insure a key employee?<\/summary>

Under Florida law, a business entity can have an insurable interest in a key employee when consent is obtained in writing from the key employee before the insurance is purchased. A separate test for an individual, based on an expectation of substantial pecuniary advantage, appears in \u00a7 627.404(2)(b)<\/a>3 and applies to individuals, not business entities. Under federal tax rules for employer-owned life insurance (IRC \u00a7 101(j)<\/a>), written notice and consent is one condition for an exception to the cap on excluded amounts. Notice and consent alone do not lift the cap: a further exception in \u00a7 101(j)(2)<\/a> must also apply, based on the insured’s status or on who receives the proceeds.<\/p><\/details>

Are key person death benefits taxable?<\/summary>

Generally, death benefits are excluded from gross income, except as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j). For employer-owned contracts, the excluded amount generally cannot exceed the premiums and other amounts paid by the policyholder, unless the notice and consent requirements are met and one of the listed exceptions applies, such as one based on the insured’s status. Interest paid on proceeds is taxable.<\/p>

If you have worked through this key person insurance checklist for employers for one employee, contact NR CPAs & Business Advisors<\/a> to set up a coverage review. Bring your completed table so the review can start with your facts.<\/p><\/details><\/article>\n