Your Business Has Partners, Employees, and Loans. What If Someone's Gone Tomorrow?
If your business depends on a few key people, you're one phone call away from a crisis. Life insurance isn't just personal — it's the safety net that keeps businesses running.
Key Person Insurance
Covers the financial impact of losing a critical employee — CEO, top salesperson, lead engineer. Coverage typically calculated at 5–10x their annual compensation. Often required by SBA lenders.
Illustrative range commonly cited by carriers (5–10× annual compensation). Actual underwriting depends on role, replacement cost, time-to-hire, and the company’s financial statements. Ask about the formula that fits your business.
Buy-Sell Agreements
A funded plan so surviving owners can buy out a deceased partner's share — and the family gets cash, not an illiquid business stake. After the 2024 Connelly v. IRS ruling, how you structure this matters more than ever.
Executive Bonus (Section 162)
The simplest executive benefit: bonus a key employee's insurance premium. You get a full tax deduction. They get a policy they own. No ERISA paperwork, no plan documents, can be set up in days.
Common Misconception: "Key person insurance premiums are tax-deductible." They're not — the IRS is clear on this. But the death benefit is received tax-free by the company. We'll walk you through the actual economics.
Business Insurance — What's Actually at Stake
Most business owners insure their building and their inventory. Very few insure the people who make the business run. Here's what that looks like in practice.
Key Person Insurance
When You Need It
If one person's absence would cost your business $500,000+ in lost revenue, client relationships, or institutional knowledge — you need key person coverage. SBA lenders often require it. Coverage is typically calculated at 5–10x the person's annual compensation.
Premiums are NOT tax-deductible. The IRS is clear on this. But the death benefit is received tax-free by the company — and the cost of not having it is measured in business survival, not tax savings.
Buy-Sell Agreements
Why Connelly v. IRS Changed Everything
Before June 2024, many businesses used entity-purchase buy-sell agreements — the company owns the policy and buys the deceased partner's shares. The Supreme Court's Connelly ruling changed the math: life insurance proceeds now increase the company's fair market value for estate tax purposes. Cross-purchase agreements are now strongly preferred.
If your buy-sell agreement was written before 2024 and uses an entity-purchase structure, it needs to be reviewed. The tax implications may have changed dramatically. We work with estate attorneys to help restructure.
Executive Bonus (Section 162)
Why It's the Simplest Executive Benefit
No ERISA compliance. No plan documents. No IRS approval. No discrimination testing. Can be set up in days. You bonus the premium amount, deduct it under Section 162, and the employee owns the policy outright. The employee reports the bonus as W-2 income and gets a policy that builds tax-deferred cash value.
The "double bonus" arrangement — where you also bonus enough to cover the employee's tax on the insurance bonus — is the most common structure. It costs more but eliminates the employee's objection.
What Business Owners Get Wrong About Insurance
"Our general liability covers this."
General liability covers lawsuits and property damage. It does not cover the economic loss when a key person dies or a partner's estate demands a buyout. These are separate risks that require separate solutions.
"We set up our buy-sell agreement years ago — we're fine."
Buy-sell agreements need review every 2–3 years for updated valuations. And after Connelly v. IRS (2024), entity-purchase structures may now create unexpected estate tax liability. If yours hasn't been reviewed since 2024, it's overdue.
"Key person insurance premiums are deductible."
They're not. Never have been. But the death benefit is received tax-free by the company. The real question isn't deductibility — it's whether your business can survive the loss without a financial cushion.
Questions Every Business Owner Should Answer
If you can't answer these, your business has unprotected exposure.
- If my top revenue-generating person died tomorrow, what would it cost the business in the next 12 months?
- Does my buy-sell agreement use cross-purchase or entity-purchase — and has it been reviewed post-Connelly?
- Are the insurance policies funding my buy-sell agreement still adequate for the current business valuation?
- What executive retention tools am I using beyond salary and bonus?
- If a partner becomes disabled (not dead), what happens to their ownership interest?
Most business owners can't answer more than two of these. That's exactly why we start with a 15-minute assessment.
Not Sure Where to Start?
That's exactly what the first conversation is for. No pressure, no jargon, no sales pitch — just a clear picture of where you stand and what makes sense for your situation.
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