Key Person Life Insurance Coverage When The Employee Retires

Key person life insurance provides financial protection for a business in the event of a catastrophic event during the employment of a valued colleague.

What are the options, however, when this key employee makes it to a prescribed retirement age?
If all or part of the death indemnification came from a permanent, cash value-building policy, here are some options available for the employer:

  • The company can surrender the policy and retain the cash value. There would be tax on the gain, but the premium would come back tax free.
  • The company can surrender the policy, keep the refunded premium, and pay the gain to the employee as a retirement bonus. While the company would be taxed on the gain, it would be able to deduct anything paid to the employee as a retirement supplement.
  • The company could surrender the policy and then pay 100% of the funds to the employee as a retirement supplement.
  • The company can transfer the policy to the employee if the employee wants to keep the coverage in place. This would be a taxable event for the employee, and a deduction for the company.
  • The company can keep the policy in force even after the employee has left the company.

In summary, by nature, key person coverage protects a business against the premature death of an important employee. It can also create a range of attractive options for the business at the key person’s retirement.

Please contact our agency at if additional information or a customized discussion is desired.

James P. Cahill, CLU

James is a 40-year veteran of the life insurance marketplace in the Greater Chicago area. His career has included a 22-year association as a branch manager and senior account executive with Hartford Life, earning top national office and top national account executive designations, while qualifying for award-conference level in 20 of those 22 years.

Our value proposition is a simple one.  Offer a thorough and cost-effective solution to business clients through careful analysis, consultation, and implementation.

This blog is for educational and/or informational purposes only and does not constitute tax, financial, or legal advice.

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