Corporate services
Business life insurance that keeps the company whole.
Key person coverage, buy-sell funding, group term life and Section 162 executive bonus plans — for companies from two owners to a few hundred employees.
Key person insurance
When one person's absence stops the revenue
The company owns the policy, pays the premium and is the beneficiary. Premiums are generally not deductible, and the death benefit is generally received income-tax free.
Replaces lost revenue
Proceeds offset the earnings a rainmaker, lead engineer or sole-relationship owner was generating while a replacement is found.
Funds recruitment
Search fees, relocation and a competitive package for a senior replacement routinely exceed one year of salary.
Reassures lenders
Many commercial loan covenants require key person coverage with the lender as collateral assignee. Having it in place protects the facility.
Stabilises the balance sheet
Liquidity at the moment of loss means payroll and supplier obligations continue without emergency borrowing.
Employer-owned policies must satisfy the notice and consent requirements of IRC §101(j) before issue, or the death benefit can lose its tax-free treatment. We handle that paperwork as part of placement.
Buy-sell funding
An agreement without funding is a wish
Most closely held companies have a buy-sell clause and no cash to execute it. Life insurance is the cheapest way to have the money on the day it is needed.
Cross-purchase
Each owner owns a policy on every other owner and buys their shares directly.
Clean step-up in basis for the buyers. Impractical past three or four owners — the number of policies grows fast.
Entity purchase (stock redemption)
The company owns the policies and redeems the departing owner's shares.
One policy per owner and simple administration, but surviving owners get no basis increase.
Trusteed / hybrid
A trustee holds the policies and administers the purchase under the agreement.
Scales to more owners and allows the agreement to choose the buyer at the time of the event.
How the funding actually works
- 01
Owners execute a buy-sell agreement setting the trigger events and the valuation method.
- 02
Life insurance is placed on each owner in an amount matching their share of the agreed value.
- 03
A triggering event occurs — death, disability, retirement or a defined departure.
- 04
The death benefit is paid to the policy owner named in the structure.
- 05
Those proceeds fund the purchase of the departing owner's interest at the agreed price.
- 06
The family receives cash instead of an illiquid minority stake, and control stays with the remaining owners.
Group term life
A benefit employees notice, at a cost you can budget
Employer-paid group term is usually the least expensive coverage an employee will ever have, and it is simple to administer.
- The $50,000 line
- Under IRC §79, the cost of the first $50,000 of employer-provided group term coverage is generally excluded from the employee's income. Coverage above that creates imputed income based on IRS Table I rates.
- Guaranteed issue
- Group plans typically cover employees without individual medical underwriting up to a stated limit — valuable for staff who would otherwise be rated or declined.
- Portability is the gap
- Group coverage generally ends with employment. It should sit on top of individual coverage, not replace it.
Executive bonus
Section 162: selective, deductible, simple
A bonus plan the company can offer to chosen executives without the cost and testing of a qualified plan.
STEP 01
Company selects the executive
No IRS approval, no non-discrimination testing, no plan filing. The business chooses who participates.
STEP 02
Company pays a bonus
The bonus is generally deductible to the business as reasonable compensation under IRC §162.
STEP 03
Executive is taxed on the bonus
It is W-2 income to the executive in the year paid. A 'double bonus' can be sized to cover the tax as well.
STEP 04
Executive owns the policy
The executive applies for and owns a permanent policy, naming their own beneficiary.
STEP 05
Premiums are paid from the bonus
Cash value accumulates inside the policy for the executive's later use, subject to policy charges.
STEP 06
Retention via restrictive endorsement
An optional agreement limits the executive's access to cash value until vesting conditions are met.
Things that go wrong, and how to avoid them
- Size the bonus to cover the executive's tax as well, or the policy ends up underfunded.
- Put the arrangement in a short written agreement, even though no filing is required.
- Design the policy for cash value, not for the largest possible death benefit, if retention is the goal.
- Review annually; a raise or an ownership change can alter whether the bonus is still reasonable compensation.
Engagement
What happens, and how long it takes
- 01
Discovery
Ownership structure, cap table, existing agreements, lender requirements and any coverage already in force.
- 02
Valuation input
We work from your CPA's or appraiser's valuation. Where none exists, the agreement should name the method before policies are sized.
- 03
Design
Structure selection, coverage amounts per owner or executive, and who owns and pays for each policy.
- 04
Underwriting
Business cases often require financial underwriting alongside medical — typically four to ten weeks for multiple insureds.
- 05
Documentation
Your attorney drafts or updates the agreement; we align ownership, beneficiary and assignment forms to it.
- 06
Annual review
Valuations and coverage drift apart. We revisit both every year, and after any ownership change.
Life insurance and annuities are not FDIC insured, are not bank deposits, are not guaranteed by any bank, and may lose value. Tax treatment described here is general and depends on facts, entity type and current law. Osurity does not provide tax or legal advice — work with your CPA and attorney on documentation and valuation.