LIFE INSURANCE PLANNING FOR EXECUTIVES AND FOUNDERS
Kelly Insurance Group provides life insurance planning for executives and founders — addressing personal income replacement, business continuity, buy-sell funding, key person coverage, executive benefit arrangements, and the coordination of personal and business life insurance programs that business-owning executives require.
SELECT YOUR SITUATION — SEE WHICH COVERAGE STRUCTURES APPLY.
A founder whose net worth is primarily tied to equity in their company faces a specific life insurance challenge: the death benefit needs to provide family liquidity and potentially fund a buyout of the founder's equity interest — but the equity value itself fluctuates.
- Large term or permanent policy for family income replacement
- Key person policy owned by the company to fund transition costs
- Buy-sell agreement funding
- Collateral assignment for business loans
WHAT DISTINGUISHES LIFE INSURANCE PLANNING AT THE EXECUTIVE AND FOUNDER LEVEL.
PERSONAL VS. BUSINESS COVERAGE SEPARATION
An executive or founder typically needs two distinct life insurance programs: a personal program providing family income replacement and estate liquidity, and a business program addressing key person risk, buy-sell funding, and lender requirements. Mixing the two — or assuming one covers the other — creates coverage gaps that are often discovered only at claim time.
EXECUTIVE BENEFIT ARRANGEMENTS
Split-dollar life insurance, executive bonus arrangements funded with life insurance, and corporate-owned life insurance (COLI) are specific structures used to provide executive benefits through life insurance. These arrangements have specific tax, ownership, and planning implications that require coordination between the insurance advisor, CPA, and benefits counsel.
SUCCESSION PLANNING COORDINATION
Life insurance is frequently the funding mechanism for business succession plans. Whether the succession involves family members, co-owners, key employees, or a third-party sale, the insurance program should be reviewed alongside the succession plan to confirm that coverage is adequate and appropriately structured for the transition scenario being planned for.
RELATED LIFE INSURANCE PLANNING TOPICS
FREQUENTLY ASKED QUESTIONS.
What is the difference between key person insurance and a buy-sell funding policy?
Key person insurance is owned by the business and compensates the business for the financial harm caused by the death of a key employee or owner — covering recruitment costs, lost revenue during transition, and operational disruption. A buy-sell funding policy is used specifically to fund the purchase of a deceased owner's business interest. Both may be needed simultaneously, and they are distinct policies with different ownership and beneficiary structures.
How should a founder size their personal life insurance relative to their business equity?
The personal life insurance should be sized to provide family income replacement and estate liquidity independent of the business equity value. The business equity is a separate asset — potentially addressed through a buy-sell agreement or other planning — but the personal death benefit should not be sized down in the assumption that the family will receive liquidity from the business. The two planning exercises should be done independently and then reviewed together.
What is a split-dollar life insurance arrangement?
Split-dollar is a life insurance arrangement where the premium payments, death benefit, and cash value are split between two parties — typically an employer and an employee. The employer funds all or part of the premium in exchange for an interest in the death benefit or cash value. Split-dollar is a common executive benefit tool but has specific regulatory requirements and tax implications.
Can a C-corporation deduct life insurance premiums for a buy-sell policy?
Generally, no. Life insurance premiums paid by a corporation where the corporation is the beneficiary are not deductible as a business expense. This applies to both key person policies and entity-purchase buy-sell policies. The premium is a non-deductible business expense in most circumstances. The CPA should be involved in the business cash flow analysis.
How often should the buy-sell funding policy be reviewed?
The policy should be reviewed whenever the business is valued, when a new partner or owner is added, when an existing partner's ownership percentage changes, and at minimum every three years. The death benefit must track the business valuation — a policy placed when the business was worth $2 million may be significantly underfunded if the business is now worth $8 million.
What happens to key person life insurance if the key person leaves the company?
If a key employee leaves, the company-owned policy can be surrendered for cash value, continued for the death benefit, transferred to the departing employee under a transfer-for-value arrangement, or used as a bargaining chip in separation negotiations. The appropriate disposition depends on the policy type, the cash value status, and the specific circumstances of the departure.
READY TO DISCUSS YOUR LIFE INSURANCE SITUATION?
COORDINATE YOUR PERSONAL AND BUSINESS LIFE INSURANCE.
Kelly Insurance Group helps executives and founders build life insurance programs that address both personal and business needs — income replacement, estate planning, buy-sell funding, key person coverage, and executive benefit arrangements.
The availability of coverage and eligibility for coverage can depend on numerous factors. We cannot guarantee that all customers, individuals, and businesses looking for coverage will be successful in these efforts when contacting our team. All policy coverages and terms need to be fully reviewed by the respective consumer to ensure the coverage asked for is what is specifically being quoted or provided by any insurance policy. Insurance Policies, Coverage Changes, and their terms and conditions are not bound or altered until written confirmation is provided by one of our licensed team members or underwriters. This page does not offer legal advice, legal opinions, or policy interpretations. Rather, this page is meant as a resource to help provide customers and insurance consumers with additional considerations that may help in their insurance buying or pursuit of insurance information. Kelly Insurance Group does not employ or direct attorneys.
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Disclaimer: Coverage availability and eligibility may depend on many factors, including underwriting review, carrier guidelines, policy terms, state requirements, business operations, risk characteristics, and other information provided during the application or quoting process. Kelly Insurance Group cannot guarantee that every individual, customer, organization, or business seeking coverage will qualify for, receive, or successfully place insurance coverage. All policy coverages, exclusions, conditions, limits, endorsements, and terms should be carefully reviewed by the consumer, insured, or applicant to confirm that the coverage requested is the coverage being quoted, offered, or provided. Insurance coverage, policy changes, endorsements, cancellations, and other policy terms are not bound, changed, confirmed, or altered unless and until written confirmation is provided by a licensed Kelly Insurance Group team member, the applicable insurance carrier, or an authorized underwriter. This page is provided for general informational purposes only and does not provide legal advice, legal opinions, insurance coverage opinions, or policy interpretations. Information on this page should not be relied upon as a substitute for reviewing the actual policy language or consulting appropriate professional advisors. Kelly Insurance Group does not employ, supervise, or direct attorneys.