Key-person life insurance
Death of the insured person
Recovery, recruitment, debt repayment or restructuring
Key-Person Insurance · Ottawa
Give your business time to recover from losing a key person.
A founder, specialist or relationship manager can be difficult to replace. Key-person insurance can help the business meet the financial cost of a covered death, illness or disability.
Start with the exposure
Measure the impact, not just the salary.
Consider who holds essential knowledge or a professional licence, manages major clients, guarantees debt, or supports a future sale. Estimate the time needed to restore their contribution.
Estimate the protection gap
- Expected lost profit during recovery
- + recruitment and transition expenses
- + vulnerable debts and obligations
- + additional contingency requirements
- − available reserves and existing coverage
- = estimated key-person protection gap
This estimate does not guarantee that an insurer will approve the requested coverage amount.
Match the policy to the risk
Death, illness and disability need different protection.
Key-person critical illness insurance
Diagnosis of a covered condition and satisfaction of policy requirements
Temporary leadership, staffing and operating expenses
Key-person disability insurance
A qualifying disability under the policy
Expenses during an extended absence
Personal insurance
Financial effect on the insured person or family
Household income, debts and family responsibilities
The business typically owns and pays for the policy and receives the approved benefit. The insured person’s family does not automatically receive these funds; household protection requires its own arrangement.
Choose a duration that fits the need
Term coverage can fit the time needed to repay debt, train a successor or complete a transition. Permanent coverage may fit a lifelong business or estate need. Compare the duration and purpose before choosing a product.
Explore term coverageExplore permanent coverageReduce dependence alongside the insurance
Document procedures, cross-train staff and share client relationships. Arrange emergency signing authority, secure system access and temporary leadership. Insurance can fund a recovery; it cannot replace knowledge or relationships.
Questions before you decide
Look closely at the details.
Can an employee be insured without their knowledge?
The proposed insured person will generally need to know about the coverage, consent to the application and participate in the insurer’s underwriting process.
Are the premiums tax-deductible?
Life insurance premiums are generally not deductible. Limited exceptions may apply when a policy is required and assigned as collateral for a qualifying business loan. The company’s accountant should confirm the applicable treatment.
Are life insurance proceeds taxable to the business?
Life insurance proceeds received by a corporate beneficiary as a consequence of death are generally received tax-free. For a private corporation, a portion may also increase its capital dividend account. The actual treatment depends on the policy and corporate circumstances.
Does key-person insurance fund a shareholder buyout?
Not necessarily. Key-person coverage protects the company against an economic loss. Buy-sell insurance is structured to fund obligations arising when a shareholder dies. One policy should not be expected to accomplish both purposes unless the coverage amount and legal structure support both needs. See our Buy-Sell Agreement Funding page for a full overview.
What happens if the key person leaves the company?
The business may be able to retain, change, transfer, surrender or cancel the policy, subject to the contract and applicable tax considerations. This possibility should be discussed before coverage is purchased.
Review with Centerpointe
Review the people your business depends on.
We’ll assess the exposure, compare it with reserves and existing coverage, and explain suitable options through the insurers we represent. If you proceed, we support the application and document the owner and beneficiary. Review the policy when revenue, debt, ownership, staffing or the person’s responsibilities change.
Key-Person Insurance Areas We Serve
Key-Person Insurance guidance in Ottawa and neighbouring Eastern Ontario communities.
This page provides general educational information and does not constitute insurance, investment, legal, accounting or tax advice.
Key-person insurance does not guarantee business continuity, replacement of lost revenue or recovery of company value. Benefits are payable only when the policy’s claim requirements are satisfied.
Insurance is subject to eligibility, underwriting, exclusions, limitations and approval by the issuing insurer. Premiums, benefits, definitions, waiting periods and tax treatment vary by policy.
Life insurance premiums are generally not deductible, although limited exceptions may apply in qualifying collateral-insurance arrangements. Corporate ownership, beneficiary designations, collateral assignments and the use of insurance proceeds should be reviewed with qualified insurance, legal and accounting professionals.