Key-Person Life Insurance and Employee Consent

Employer-owned life-insurance proceeds can lose favorable exclusion treatment if the statutory notice and consent requirements were not satisfied before policy issuance. Exceptions and limited correction guidance require careful review; later consent is not automatically a cure. Annual reporting is a separate obligation.

A specific business-owner situation

A company buys key-person coverage, then asks the insured employee to sign consent months later. The owner should not assume the eventual death benefit will be entirely excluded simply because the company is the named beneficiary.

Illustrative example, not a client result.

What to establish before filing

Establish issuance notice and consent dates.
Review covered-employee exceptions and any available correction guidance.
Coordinate annual Form 8925 reporting.

Which fact changes the answer?

The insured's status and the timing of notice and consent can change the exclusion analysis. Policy ownership alone does not settle it.

A mistake to avoid

Do not backdate consent or treat a late signature as evidence of timely compliance.

Records that support the decision

Policy and application.
Employee notices and signed consent.
Coverage and reporting history.

The decision to document

Review the policy with tax and insurance advisors before relying on its projected after-tax proceeds.

Business-owner tax planning and coordination · Discuss your business and advisory needs

Sources and editorial context

General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.

We bought key-person life insurance before obtaining employee consent. Does that affect the tax treatment?