Business-Owned Life Insurance Rules Owners Need to Know

Your company owns a $2 million life insurance policy on your co-founder.

That is business-owned life insurance, and the policy is only one part of the system the company needs.

The business pays the premiums. The company is the beneficiary. You bought the policy to provide cash if your co-founder dies, so the team can keep getting paid, clients can be retained, and the business has time to recover.

Then your CPA asks three questions: Where is the employee’s written consent? Who received the notice before the policy was issued? Has the company been filing Form 8925 with its tax return each year?

What Business-Owned Life Insurance Actually Means

For federal tax purposes, an employer-owned life insurance contract generally involves a person engaged in a trade or business owning a policy on someone who is an employee when the contract is issued, with the business or a related person benefiting from the proceeds.

The Notice and Consent Work Happens Before the Policy Is Issued

Under Internal Revenue Code Section 101(j), written notice and consent generally need to be handled before an employer-owned policy is issued.

Form 8925 Is Not a One-Time Filing

Internal Revenue Code Section 6039I requires reporting for applicable policyholders that own employer-owned life insurance contracts issued after August 17, 2006. The IRS uses Form 8925 for that reporting.

LIFT - Legal, Insurance, Financial & Tax® Framework

Business-owned life insurance sits at the intersection of all four systems. Reviewing only the policy leaves three quarters of the plan unseen.