{"id":8318,"date":"2026-10-31T03:27:51","date_gmt":"2026-10-31T03:27:51","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/can-key-person-insurance-pay-estate-taxes\/"},"modified":"2026-10-31T06:42:36","modified_gmt":"2026-10-31T06:42:36","slug":"can-key-person-insurance-pay-estate-taxes","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/can-key-person-insurance-pay-estate-taxes\/","title":{"rendered":"Key Person Insurance and Estate Taxes in Florida"},"content":{"rendered":"\n
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Key Person Insurance | Florida<\/p>

Plan for Key Person Coverage and Estate Taxes in Florida<\/h1>

NR CPAs & Business Advisors helps Florida business owners and their families look at how key person insurance can support the business and the estate, with a CPA's view of tax and cash flow. Insurance is offered through our licensed insurance agent, separately from our accounting practice.<\/p>

Call us today to schedule a coverage review<\/a><\/div>
Call us today to schedule a coverage review<\/a><\/div><\/div>\n<\/div><\/div>\n\n\n

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

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A key person policy usually does not pay estate tax directly. It can reach the estate indirectly, usually through a buy-sell agreement that requires a purchase. Ownership, beneficiary choices, and the agreement’s terms decide the path. Here is how it works in plain words.<\/p>\n

What Key Person Insurance Is and Who Owns It<\/h2>\n

Key person insurance is life insurance a business buys on an owner or key employee whose death would hurt the company. A key employee is someone whose role or skills matter to the company’s income. According to the Insurance Information Institute<\/a>, key person life insurance compensates a business for financial losses caused by a key employee’s death or disability.<\/p>\n

In a typical arrangement, the business owns the policy, pays the premiums, and is the beneficiary. If the insured dies, the insurer pays the business. Ownership and beneficiary choices decide where the money goes. Two policies on the same person can lead to very different results if the owner or beneficiary differs.<\/p>\n

Nischay Rawal is a licensed insurance agent who offers life insurance through NR CPAs & Business Advisors, a Miami CPA firm. Under Fla. Stat. \u00a7 626.112<\/a>, a person may act as an insurance agent only when currently licensed and appointed. Fla. Stat. \u00a7 626.112<\/a> reads: “(1)(a) No person may be, act as, or advertise or hold himself or herself out to be an insurance agent, insurance adjuster, or customer representative unless he or she is currently licensed by the department and appointed by an appropriate appointing entity or person.” Insurance is offered by the licensed agent, separately from the accounting practice.<\/p>\n\n

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If a co-owner has died and the estate holds a business interest with little cash, our team can walk through your policies and agreement in 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
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Why a Business Policy Does Not Automatically Pay the Owner’s Estate Tax<\/h2>\n

A business-owned policy pays the business, so it does not automatically pay the estate’s tax bill. Cash paid to the company stays with the company unless the business moves it to the estate through a legal path.<\/p>\n

Federal law can also pull the policy into the estate itself. Under IRC \u00a7 2042<\/a>, proceeds payable to the executor count in the gross estate. Proceeds payable to other beneficiaries count when the decedent held incidents of ownership at death, alone or with another person. IRC \u00a7 2042<\/a> reads: “For purposes of the preceding sentence, the term \u201cincident of ownership\u201d 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.”<\/p>\n

Many owners hold most of their wealth in the business. That can create a liquidity gap. The family owns a valuable company but has little cash on hand to pay taxes or other debts. Company value and cash are different things.<\/p>\n

How a Buy-Sell Agreement Can Connect the Policy to the Estate<\/h2>\n

A buy-sell agreement can move policy cash to the estate by requiring a purchase of the deceased owner’s interest. It is a contract that sets what happens to an owner’s share at death. It often requires the business or the other owners to buy that share. Life insurance can fund the purchase, so the estate receives cash for the interest.<\/p>\n

There are two common structures. In an entity redemption, the business owns the policy and buys the shares. In a cross-purchase, each owner holds a policy on the others and buys their shares directly. Who owns the policy changes how the money moves.<\/p>\n

Florida’s shareholder agreement statute, Fla. Stat. \u00a7 607.0732<\/a>, makes an agreement effective among shareholders and the corporation when it meets the statute’s requirements. One route is to set the agreement forth or reference it in the articles or bylaws, with all shareholders approving it at that time.<\/p>\n

A cash purchase price does not settle estate tax by itself. Under 26 C.F.R. \u00a7 20.2031-3<\/a>, a business interest’s value is what a willing buyer would pay a willing seller. That value is determined on the basis of all relevant factors, including a fair appraisal of all the assets of the business, tangible and intangible, including good will, and the demonstrated earning capacity of the business. The agreement’s price and this valuation rule should be checked against each other.<\/p>\n

When Life Insurance Proceeds Can Be Pulled Into the Taxable Estate<\/h2>\n

Death benefits are generally excluded from the beneficiary’s income, but estate inclusion follows different rules. Under 26 U.S.C. \u00a7 101<\/a>, amounts paid by an insurer by reason of death are generally excluded from gross income. That rule has exceptions, including the transfer-for-value rule. Income tax and estate tax are separate questions.<\/p>\n

Section 101 addresses the income exclusion: except as otherwise provided in paragraphs (2) and (3), subsection (d), subsection (f), and subsection (j), gross income does not include amounts received under a life insurance contract paid by reason of the insured’s death. It does not set the estate inclusion rule; for that, see 26 C.F.R. \u00a7 20.2042-1<\/a>. See 26 C.F.R. \u00a7 20.2042-1<\/a>. Under 26 C.F.R. \u00a7 20.2042-1<\/a>, rights a corporation holds in a policy can be attributed to a decedent through his stock ownership only where he is the sole or controlling stockholder, meaning he owned stock with more than 50 percent of the total combined voting power. That attribution applies only to proceeds not payable to the company.<\/p>\n

Who holds the rights and who receives the money drive the result. Keep policy records with the buy-sell agreement so both can be reviewed together.<\/p>\n

Estate Tax Exposure: What Determines Whether It Applies<\/h2>\n

Whether a particular estate faces federal transfer tax depends on the facts of that estate. For calendar year 2026, the basic exclusion amount under \u00a7 2010(c)(3)<\/a> is $15,000,000, and inflation increases apply to decedents dying in a calendar year after 2026, as set out in the IRS’s 2026 inflation-adjustment revenue procedure<\/a>. Under IRC \u00a7 2010<\/a>, the estate’s credit cannot exceed the tax imposed.<\/p>\n

The taxable estate can include business interests, other property, and life insurance that counts under the rules above. A large business interest can also open a path to installments. Under IRC \u00a7 6166<\/a>, if the decedent was a U.S. citizen or resident at death and a closely held business interest exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax in two or more, but not more than 10, equal installments.<\/p>\n

For married owners, the marital deduction<\/a> covers interests passing to a surviving spouse, but only to the extent those interests are included in the gross estate. It is disallowed when the surviving spouse is not a United States citizen, subject to the exceptions in the statute, and certain terminable interests are excluded.<\/p>\n

Gather ownership percentages, existing agreements, and policy beneficiary names before a review.<\/p>\n

Questions to Ask Before Relying on Key Person Coverage for Estate Costs<\/h2>\n

Before counting on key person coverage for estate costs, check ownership, beneficiaries, and the buy-sell agreement.<\/p>\n