Keyman, Key Person Death Benefits are Tax-Free if...
Beware of the tax-traps lurking on keyman, key person life insurance.
Keyman, Key person death benefits are tax-free to the Company if certain Notice and Consent Requirements are met prior to issuance of the Policy, and certain conditions are met at the time of death. If they are not met, the insurance death benefits in excess ot the premiums paid, are taxed as ordinary income.
The insurance industry has created a standard IRS-approved form: ‘Notice and Acknowledgement of Consent to Life Insurance’ that can be provided to the employee at the time of the application for key man Company Owned Life Insurance (COLI).
IRS Notice and Consent Requirements
Effective for life insurance contracts issued after August 17, 2006
Definition: The law defines “employer-owned life insurance” broadly. It includes any policy if:
The owner engages in a trade or business, and
The owner (or a related party) is a beneficiary (direct or indirect), and
The insured is an employee at the time of policy issue, a
The insured is a U.S. citizen or resident.
The notice and consent requirements…are met if, before the issuance of the contract:
The employee is notified in writing that the applicable policyholder intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract was issued,
The employee provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and
The employee is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee.
There are other conditions that must be met at the time of death.
Profit from my 35+ years experience working with high net worth individuals, families, entrepreneurs and businesses, helping them create wealth, keep their wealth and pass it on to the next generation. You can benefit too. I have made and lost millions in the stock market and you can benefit from this too. Ever since I have been searching for Safe Income Strategies and Solutions. We use three Safe Income Strategies that are focused on keeping your money safe, paying more than Bank CDs, Money Markets and Treasuries without the gut wrenching downside and yo-yo volatility of Stocks, Bonds and Mutual Funds. These Strategies Work. During the Financial Market meltdown of 2008 and 2009 none of our clients using these Strategies lost money due to market volatility.