Protect your business, your partners, and your family with life insurance strategies designed for entrepreneurs. From key person coverage to buy-sell funding to executive retention — we build the plan your business needs.
Key person insurance provides your business with funds to survive the financial impact of losing an essential employee, founder, or executive.
The business purchases a life insurance policy on a key employee. The business pays the premiums, owns the policy, and is the beneficiary. If the key person dies, the business receives the death benefit to cover recruitment costs, lost revenue, and business stabilization.
The business entity
The business entity
Not tax-deductible
Income tax-free to business
Any person whose absence would cause significant financial harm to the business. This includes founders, CEOs, top salespeople, lead developers, and anyone with unique skills, client relationships, or institutional knowledge that cannot be easily replaced.
Top sales producers, rainmakers
Lead engineers, IP creators
Founders, C-suite, managing partners
Key client managers, deal makers
Estimate how much key person coverage your business needs
Life insurance funds your buy-sell agreement, providing immediate cash for surviving owners to purchase a deceased partner's share at a fair, pre-agreed valuation.
Each business owner purchases a policy on every other owner. When an owner dies, the surviving owners use the death benefits to buy the deceased owner's share directly.
Best for: 2–3 owner businesses. Surviving owner gets a stepped-up cost basis.
The business entity itself purchases policies on each owner. When an owner dies, the business receives the death benefit and uses it to redeem (buy back) the deceased owner's share.
Best for: 4+ owner businesses. Simpler administration (fewer policies needed).
The business pays life insurance premiums as a bonus to a key executive. The premium is tax-deductible to the business under Section 162 as compensation. The executive owns the policy and names their own beneficiaries.
Tax-deductible premium payments
Personally-owned life insurance
Simple — no ERISA, no plan document
Bonus is taxable income (often grossed-up)
The business and executive share the costs and benefits of a life insurance policy. The business typically pays premiums and recoups its investment from the cash value or death benefit, while the executive receives the remaining coverage benefit.
Business owns policy, endorses benefit to exec
Exec owns policy, assigns interest to business
Key executives with large coverage needs
Moderate — requires formal agreement
Group life insurance is one of the most valued employee benefits. Premiums are tax-deductible to your business under Section 79, and the first $50,000 of coverage per employee is tax-free to them.
Palmwood designs custom group plans for businesses with 5 to 500+ employees, including basic employer-paid coverage, voluntary supplemental options, and dependent coverage.
| Entity Type | Key Person | Buy-Sell Structure | Exec Benefits | Tax Notes |
|---|---|---|---|---|
| Sole Proprietor | Personal policy | N/A (no partners) | N/A | Personal coverage is essential; no entity separation |
| Partnership | Entity or cross-purchase | Cross-purchase preferred | Split-dollar possible | Cross-purchase gives stepped-up basis to survivors |
| LLC | Entity-owned | Either structure works | Section 162 bonus | Tax treatment follows election (partnership or corp) |
| S-Corp | Corp-owned | Redemption or cross-purchase | Section 162 bonus | Beware of AMT on entity-owned policies |
| C-Corp | Corp-owned | Redemption most common | Section 162, split-dollar | Premiums deductible for exec bonus; COLI rules apply |
Digital marketing agency, 12 employees
The founder and primary client relationship manager passed unexpectedly. He personally managed 70% of client accounts.
The Result: $1.5M key person policy funded 18 months of operations, a senior hire from a competitor, and client retention efforts. The agency survived and eventually thrived under new leadership.
Law firm, 3 equity partners
When one of three partners died, the surviving partners needed to buy out his 33% share. Without funding, they would have needed to sell firm assets or take on massive debt.
The Result: Cross-purchase policies provided $2.4M to buy the deceased partner's share. His family received fair value within 60 days. The firm continued operating without disruption.
SaaS company, 85 employees
A fast-growing SaaS company needed to retain their CTO who was receiving competing offers. Traditional raises alone were insufficient to match equity-heavy competing offers.
The Result: A Section 162 executive bonus plan providing a $1M whole life policy. The company deducted the $12,000 annual premium. The CTO received a high-value benefit that also served as a personal financial asset.
Premiums are generally NOT tax deductible because the business is the beneficiary. However, the death benefit received by the business is typically income tax-free under IRC Section 101(a), making it very tax-efficient despite non-deductible premiums.
Common methods include 5–10x compensation, revenue impact over replacement time, or contribution to profits. Use our calculator above to estimate. For a $200K employee generating $800K in revenue, $1–2M is typical.
A legally binding contract dictating what happens to ownership shares if an owner dies, becomes disabled, or leaves. Life insurance funds the agreement, providing immediate cash for surviving owners to purchase the share at a pre-agreed valuation.
The business pays life insurance premiums as a bonus to a key executive. The premium is tax-deductible to the business as compensation expense under Section 162. The executive owns the policy and names their own beneficiaries. Simple and effective with no complex plan administration.
Most business owners need both. Personal coverage protects your family (income, mortgage, education). Business coverage protects your company (key person, buy-sell, loans). These serve different purposes and should be structured separately for optimal tax treatment.
Entity type affects policy ownership, tax treatment, and strategy. Sole proprietors need personal coverage. Partnerships use cross-purchase or entity buy-sells. LLCs follow their tax election. C-Corps can deduct executive bonus premiums. Your Palmwood advisor will design coverage for your specific entity.
Our business insurance specialists will analyze your key person exposure, ownership transition risks, and executive retention needs — all in one comprehensive review.