Company-owned life insurance is any life insurance coverage that a business takes out on an employee or set of employees who are considered crucial to the ongoing success of the company. With this type of life insurance plan, the business pays the premiums on the coverage, and is also named as the primary beneficiary. This arrangement allows the business to collect benefits in the event that a key employee should die suddenly, providing the company with resources to handle the expenses of finding a replacement and keeping the business afloat in the interim period.
Many companies choose to take out company-owned life insurance coverage on key individuals who play especially important roles in the life of the business. Owners of the business are often insured with this type of policy. In some situations, this type of plan also insures key employees like presidents, corporate executive officers or corporate financial officers. While the loss of key people can be devastating to any business, taking out this type of insurance coverage makes it possible to minimize the expenses that are incurred as the business implements temporary operational procedures to keep functioning, and while seeking a qualified replacement for the recently deceased key individual.
The exact scope of coverage provided by a company-owned life insurance policy will vary, based on the needs of the client and any laws that may apply in the area where the business is based. It is not unusual for the terms of the policy to exclude certain causes of death from coverage, such as suicide or death occurring while the covered party is engaged in any type of illegal activity. As with most types of life insurance, the amount of the premium will depend on the range of the coverage, and the total amount of benefits that the business wishes to include in the plan.
In many nations, a company-owned life insurance policy provides more than just death benefits when an insured party passes away. Often, there are also tax advantages to this situation. For example, tax laws may allow the business to collect the benefit without the need to pay taxes on the collected amount, or at least pay a reduced tax based on how the funds from the death benefit are classified in current tax regulations. This can be especially important when the cash value of the company-owned life insurance policy exceeds the total amount of premiums paid up to the time that the insured party dies.
