UNDER KEYMAN INSURANCE POLICY WHEREIN BENEFICIARIES IS ONLY THE EMPLOYER IS THERE IS THER ANY POSSIBILITY UNDER WHICH KEYMAN INSURED'S NOMINEE GET THE BENEFIT O
Total Comments: 8
Posted: Sun Jun 20, 2010 03:29 am Post Subject:
Huh? If the employer is the sole beneficiary, then the employer will be the only person to receive the death benefit proceeds.
However, a DBO (death benefit only) plan may exist between the employer and the employee which entitles someone to payments from the plan. The employer would most likely be using the death benefit proceeds to make these payments.
Posted: Sun Jun 20, 2010 11:46 pm Post Subject:
I would think that the patner of the business would get the benefits. I am not to familiar with keyman.
Posted: Tue Jun 22, 2010 12:29 am Post Subject:
I would think that the patner of the business would get the benefits. I am not to familiar with keyman.
Didn't cover this in your prelicensing course?
A "Key Person" (formerly key man, no longer PC) policy is owned by and covers the business for the unexpected death or disability (depending on LI or DI) of an employee who materially contributes to the success or profitability of a company. Usually an executive or senior manager in the business, not an hourly paid factory worker. The company is the beneficiary because it is the company that suffers the economic loss of the employee's services.
Can the company choose to pay some of the death benefit proceeds to the family/heirs of a deceased employee. Yes, it's their money, and they can use it any way they choose. Typically, however, they use it to fund the process of replacing the employee.
If the key employee's family needs money in the event of his death or disability, it's up to the employee to apply for personal insurance to cover that need.
Posted: Tue Jun 22, 2010 02:17 am Post Subject:
Can the company choose to pay some of the death benefit proceeds to the family/heirs of a deceased employee. Yes, it's their money, and they can use it any way they choose.
Whoa, whoa, wait a minute. Yes it's true that the employer can choose to give the family or a chosen person a death benefit, it's not necessarily shared or just randomly paid. Max, I'm bringing this up because your post sort of made it seem arbitrary, which it absolutely is not. Arrangements between employees and employers that involve key man insurance policies typically come with legal agreements if payments are to be made to a family member or loved one. These are most commonly DBO (death benefit only) plans established between employer and employee as an added benefit to the employee. The agreement could be virtually whatever the two parties agree to, but once in force the employer would be bound to it in the event of the insured employees death.
Posted: Tue Jun 22, 2010 07:24 am Post Subject:
Well, I'll admit it was probably not the best way to bring it up. We probably agree that the majority of companies which purchase key person insurance have no intent to do anything with the money but protect the business from the financial loss and keep it to pay expenses.
And I wasn't even considering a DBO agreement, which is an uncommon use of key person. It's actually more common in split dollar arrangements as a fringe benefit, and that comes with the dreaded "imputed income" tax liability for the executive to avoid taxation of the death benefit to the beneficiary.
What I was trying to illustrate was simply the fact that, gift taxes aside, any "person" who receives a death benefit can "spend" their money any way they choose. That's no different for an individual or a business. In that scenario, they would not literally be "sharing" the death benefit, but making a gift "funded" with some of the life insurance proceeds.
Posted: Fri Jun 10, 2011 12:49 am Post Subject: keyman insurance premiums
if the premium is paid by my employer but they agree to give 50% of the benefit to my wife, do i have to report the premium paid by my employer as income since my wife will be getting 50% of the benefits?
Posted: Fri Jun 10, 2011 01:19 am Post Subject:
If you want the benefit to be received by your wife tax-free, you have to pay tax on the portion of the premium that represents the portion of the benefit to your wife. If you did not pay the tax, the death benefit would be considered "ordinary income" to your beneficiary and income tax paid on the full amount of the proceeds received.
The proper way to do this is to have your wife named as a 50% beneficiary on the policy and to have your employer "impute" the 50% of premium as income to you on your Form W-2 (money you pay income tax on even though you never actually received the money).
If you are an "exempt" executive-level employee, another way to do this is as a "split dollar" plan of insurance, where the company has a "collateral assignment" equal to the cumulative amount of premium they have paid. The premium that your employer pays must be imputed to you to make the death benefit tax free, but this could save your employer money in the long run, since they will get back 100% of what they have paid at your death. (This could allow a smaller death benefit equal to the amount you and your employer agree on to be paid to your beneficiary and then "grossed up" for the cumulative premium paid each year (best, and least confusing, to pay this with an annual premium instead of monthly or either of the other two modes).
When funded with a cash value policy, the other advantage to the employer is that they can also recover up to 100% of the premiums paid (their "cost basis") as a policy loan against the cash value (or partial withdrawal depending on the type of policy) prior to your death without affecting your beneficiary's portion of the death benefit.
This could also be used as the mechanism for you to purchase the policy from your employer if you parted company. They would get the cash value + whatever amount of money (from you) that would be needed in addition to cover their full cost basis. The policy ownership would be assigned to you (or even your wife or a life insurance trust for estate tax purposes, if necessary) and you would pay the continuing premiums.
In any event, you should consult your tax adviser to determine which method would be most beneficial in your personal circumstance.
Posted: Fri Jun 10, 2011 06:17 am Post Subject:
Yes, it is evident that it's time for you to pay a visit to your tax consultant. That way it would be a lot easier for you to choose the right method that suits your case.
Posted: Sun Jun 20, 2010 03:29 am Post Subject:
Huh? If the employer is the sole beneficiary, then the employer will be the only person to receive the death benefit proceeds.
However, a DBO (death benefit only) plan may exist between the employer and the employee which entitles someone to payments from the plan. The employer would most likely be using the death benefit proceeds to make these payments.
Posted: Sun Jun 20, 2010 11:46 pm Post Subject:
I would think that the patner of the business would get the benefits. I am not to familiar with keyman.
Posted: Tue Jun 22, 2010 12:29 am Post Subject:
I would think that the patner of the business would get the benefits. I am not to familiar with keyman.
Didn't cover this in your prelicensing course?
A "Key Person" (formerly key man, no longer PC) policy is owned by and covers the business for the unexpected death or disability (depending on LI or DI) of an employee who materially contributes to the success or profitability of a company. Usually an executive or senior manager in the business, not an hourly paid factory worker. The company is the beneficiary because it is the company that suffers the economic loss of the employee's services.
Can the company choose to pay some of the death benefit proceeds to the family/heirs of a deceased employee. Yes, it's their money, and they can use it any way they choose. Typically, however, they use it to fund the process of replacing the employee.
If the key employee's family needs money in the event of his death or disability, it's up to the employee to apply for personal insurance to cover that need.
Posted: Tue Jun 22, 2010 02:17 am Post Subject:
Can the company choose to pay some of the death benefit proceeds to the family/heirs of a deceased employee. Yes, it's their money, and they can use it any way they choose.
Whoa, whoa, wait a minute. Yes it's true that the employer can choose to give the family or a chosen person a death benefit, it's not necessarily shared or just randomly paid. Max, I'm bringing this up because your post sort of made it seem arbitrary, which it absolutely is not. Arrangements between employees and employers that involve key man insurance policies typically come with legal agreements if payments are to be made to a family member or loved one. These are most commonly DBO (death benefit only) plans established between employer and employee as an added benefit to the employee. The agreement could be virtually whatever the two parties agree to, but once in force the employer would be bound to it in the event of the insured employees death.
Posted: Tue Jun 22, 2010 07:24 am Post Subject:
Well, I'll admit it was probably not the best way to bring it up. We probably agree that the majority of companies which purchase key person insurance have no intent to do anything with the money but protect the business from the financial loss and keep it to pay expenses.
And I wasn't even considering a DBO agreement, which is an uncommon use of key person. It's actually more common in split dollar arrangements as a fringe benefit, and that comes with the dreaded "imputed income" tax liability for the executive to avoid taxation of the death benefit to the beneficiary.
What I was trying to illustrate was simply the fact that, gift taxes aside, any "person" who receives a death benefit can "spend" their money any way they choose. That's no different for an individual or a business. In that scenario, they would not literally be "sharing" the death benefit, but making a gift "funded" with some of the life insurance proceeds.
Posted: Fri Jun 10, 2011 12:49 am Post Subject: keyman insurance premiums
if the premium is paid by my employer but they agree to give 50% of the benefit to my wife, do i have to report the premium paid by my employer as income since my wife will be getting 50% of the benefits?
Posted: Fri Jun 10, 2011 01:19 am Post Subject:
If you want the benefit to be received by your wife tax-free, you have to pay tax on the portion of the premium that represents the portion of the benefit to your wife. If you did not pay the tax, the death benefit would be considered "ordinary income" to your beneficiary and income tax paid on the full amount of the proceeds received.
The proper way to do this is to have your wife named as a 50% beneficiary on the policy and to have your employer "impute" the 50% of premium as income to you on your Form W-2 (money you pay income tax on even though you never actually received the money).
If you are an "exempt" executive-level employee, another way to do this is as a "split dollar" plan of insurance, where the company has a "collateral assignment" equal to the cumulative amount of premium they have paid. The premium that your employer pays must be imputed to you to make the death benefit tax free, but this could save your employer money in the long run, since they will get back 100% of what they have paid at your death. (This could allow a smaller death benefit equal to the amount you and your employer agree on to be paid to your beneficiary and then "grossed up" for the cumulative premium paid each year (best, and least confusing, to pay this with an annual premium instead of monthly or either of the other two modes).
When funded with a cash value policy, the other advantage to the employer is that they can also recover up to 100% of the premiums paid (their "cost basis") as a policy loan against the cash value (or partial withdrawal depending on the type of policy) prior to your death without affecting your beneficiary's portion of the death benefit.
This could also be used as the mechanism for you to purchase the policy from your employer if you parted company. They would get the cash value + whatever amount of money (from you) that would be needed in addition to cover their full cost basis. The policy ownership would be assigned to you (or even your wife or a life insurance trust for estate tax purposes, if necessary) and you would pay the continuing premiums.
In any event, you should consult your tax adviser to determine which method would be most beneficial in your personal circumstance.
Posted: Fri Jun 10, 2011 06:17 am Post Subject:
Yes, it is evident that it's time for you to pay a visit to your tax consultant. That way it would be a lot easier for you to choose the right method that suits your case.
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