Oklahoma Life Producer Practice Exam

What is the primary financial consideration regarding Key Employee Life Insurance?

1. Future cash flow

2. Tax-deductibility of premiums

3. Support for business loans

4. Management of investment risks

The correct answer is: Tax-deductibility of premiums

The primary financial consideration regarding Key Employee Life Insurance revolves around the tax-deductibility of premiums. In many cases, the premiums paid for Key Employee Life Insurance are not tax-deductible to the business, which is an important factor for companies considering this type of policy. Understanding this aspect is crucial for financial planning, as businesses must evaluate the overall cost of insurance against the potential financial impact of losing a key employee. The benefits received from the policy, such as the death benefit, often provide tax-free funds to the business, which can help mitigate financial losses resulting from the death of a vital team member. Therefore, knowing the tax implications of premium payments versus the benefits of the policy is essential for business owners when making insurance decisions.