{"id":8297,"date":"2026-10-31T02:31:24","date_gmt":"2026-10-31T02:31:24","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-it-consulting-company\/"},"modified":"2026-10-31T02:31:31","modified_gmt":"2026-10-31T02:31:31","slug":"key-person-insurance-it-consulting-company","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/key-person-insurance-it-consulting-company\/","title":{"rendered":"Key Person Insurance for IT Consulting Company | NR CPAs"},"content":{"rendered":"\n
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Key Person Insurance for IT Consulting Company | NR CPAs<\/h1>
protect your loved ones<\/a><\/div>
protect your loved ones<\/a><\/div><\/div>\n<\/div><\/div>\n\n\n

By Nischay Rawal \u00b7 Published October 30, 2026<\/p>\n\n

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Key person insurance<\/a> for IT consulting company owners is a life policy the business buys, pays for and collects on if a key employee dies. The business is the beneficiary, not the family. This page explains how it works, who usually counts as a key person, and what to review before you apply.<\/p>\n

What Key Person Insurance Is and Whether an IT Consulting Company Needs It<\/h2>\n

Key person insurance is a policy a business owns on one individual’s life. The business pays the premiums and receives the benefit. The Insurance Information Institute<\/a> describes it as compensation for a business’s financial losses caused by a key employee’s death or disability.<\/p>\n

IT consulting firms are often exposed. Revenue can sit with a few engineers, architects or principals. Client contracts may name specific people. If one of them is lost, income and project momentum can drop at the same time.<\/p>\n

The decision turns on a few factors. Look at how much revenue depends on one person, how hard that person’s skills are to replace, and whether lenders or clients expect coverage. Your answers will show whether the coverage fits your company.<\/p>\n\n

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Identifying the Key People in an IT Consulting Firm<\/h2>\n

A key person is someone whose loss would hurt the company’s income or its ability to deliver work. In most IT firms, that includes the founder who holds client relationships, the lead architect with unique system knowledge, and the person who manages the largest contracts.<\/p>\n

Use a simple replacement test. Ask how long it would take to hire and train a replacement. Then ask what client knowledge, revenue or project progress would be lost in the meantime.<\/p>\n

Owners who also do key work count twice. Their loss affects both operations and ownership, so the buy-sell conversation belongs in the same review.<\/p>\n

Staff on work visas raise documentation questions. Florida law on insurable interest and written consent applies to the business’s key employees, so review those points before any application. Keep a short written list of key people and their roles. Update it each year as staffing and client mix change.<\/p>\n

What the Proceeds Can Cover and How Contracts Are Protected<\/h2>\n

The business decides how to use the proceeds. Common uses include covering lost revenue and cash flow during the transition after a key person’s death or disability.<\/p>\n

Proceeds may also help pay for recruiting, hiring and training a replacement. Some firms use them to bring in contractors while the role is filled.<\/p>\n

Lenders may require a business to keep cash on hand or repay debt after a loss. Proceeds can help meet those obligations. The policy does not promise that any client will stay.<\/p>\n

Key person coverage can also fund a buy-sell agreement when the two are set up together. Whether that fits your company depends on your ownership terms, which a coverage review can sort out.<\/p>\n

Be clear about limits. Exclusions and conditions depend on the policy form. The proceeds do not replace the person.<\/p>\n

How Coverage Amounts and Premium Costs Are Set<\/h2>\n

The coverage amount depends on revenue tied to the person, expected replacement cost, debt obligations and how long the business needs to stabilize. Those inputs matter more than a standard formula.<\/p>\n

Cost drivers include the insured person’s age, health history and insurability, the coverage amount, the policy type and the payment schedule. Premiums cannot be stated accurately until an underwritten application is completed.<\/p>\n

Health questions are required. Issue may depend on insurability. Expect the insurer to review the application before any offer is made.<\/p>\n

Permanent policies have guaranteed values and non-guaranteed values. Ask that each be shown separately. Any illustration should show its limits in the same place.<\/p>\n

Tax and Bookkeeping Points to Review With Your CPA<\/h2>\n

Premiums are generally not deductible when the business is the beneficiary. The IRC \u00a7 264<\/a> rule denies deductions for premiums on life insurance where the taxpayer is directly or indirectly a beneficiary.<\/p>\n

Under IRC \u00a7 101<\/a>, amounts paid under a life insurance contract by reason of the insured’s death are generally not included in gross income. For an employer-owned contract such as a key person policy, however, subsection (j) limits the business’s exclusion to the sum of the premiums and other amounts it paid for the contract, unless the statute’s notice and consent requirements and its other conditions are met. The IRS FAQ on life insurance proceeds<\/a> covers the general rule. Interest paid on proceeds left with the insurer is taxable.<\/p>\n

Transfers of policy ownership for value have special rules under IRC \u00a7 101<\/a>. Review these before any ownership change.<\/p>\n

Employer-owned policies can carry annual reporting. Under IRC \u00a7 6039I<\/a>, an applicable policyholder owning employer-owned life insurance contracts issued after the date this section was enacted must file a return and keep records for those contracts.<\/p>\n

Insurance is offered by the licensed agent, separately from the accounting practice. Florida law requires a CPA firm that accepts a commission on a sale to disclose that fact to the client in writing, under Fla. Stat. \u00a7 473.3205<\/a>.<\/p>\n

How the Process Works, Step by Step<\/h2>\n

The process moves from a coverage review to application, policy issue and annual review. Each step builds on the one before.<\/p>\n