Business Life Insurance for San Diego County and All of California
Coverage that helps your business keep going after losing an owner or key person.
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We work only with insurance companies rated A or better by AM Best.
CBIS is a family-owned independent agency. Based in Santee, serving San Diego County, and helping people across California by phone or video.
We’ve helped local employers with employee benefits since 1982, and we compare policies from many insurance companies.
Already have a business policy? We’ll review it, free, and tell you honestly if it still fits. Get a free policy review →
Ways Businesses Use Life Insurance
Five situations where a business may want life insurance.
Losing a key person
Your lead estimator or top producer passes away. The payout helps cover lost revenue while you hire and train.
Buying out an owner
An owner dies. The payout can buy their share from the family at the agreed price.
Getting a business loan
Your bank or SBA lender asks for life insurance before it funds the loan.
Keeping key employees
Give a manager you can’t afford to lose a policy of their own as a reward for staying.
Offering a job perk
Add life coverage to your benefits package, often a flat amount or a multiple of pay.
CBIS doesn’t give tax or legal advice. Tax points here are general, so please work with your tax advisor or attorney.
What Happens to the Business If Someone Isn’t There?
If one person brings in the clients or runs the work, losing them can leave the business short on cash while you regroup.
Key person insurance, also called key man insurance, is a policy the business buys on that person. The business receives the payout and can use it to:
- Cover lost revenue while you hire and train
- Pay business debts
- Wind down in an orderly way, if that’s the plan
Taxes, generally
What the business pays for key person coverage is generally not tax deductible.
The payout is generally income-tax-free if:
- the notice and consent rules are followed before the policy is issued, and
- the person meets one of the IRS exceptions, such as being a director or highly paid employee at that time.
Talk with your tax advisor or attorney.
Insuring an employee? Get written consent first.
- Before the policy is issued, the employee generally must be told in writing and agree in writing.
- If this is skipped, part of the payout may become taxable.
- The insurance company’s application usually includes the consent form.
Living Benefits: Help If an Owner Gets Seriously Ill
A serious illness can take an owner or key person out of the business long before anything else happens. Some life policies let the policy owner use part of the coverage early after a qualifying terminal, chronic, or critical illness, which can help keep the business running, cover bills, or bring in help while that person steps back. Any amount used lowers the later payout, which can affect a buy-sell plan or a lender’s assignment, and availability and amounts vary by policy and state. Ask your tax advisor how it applies when the business owns the policy. Learn how living benefits work
If an Owner Dies, Who Buys Their Share?
A buy-sell agreement spells out who buys an owner’s share, and at what price. Life insurance can provide the money.
- Without one, the remaining owners can end up in business with a spouse or heirs, or looking for cash at a hard time.
- Your attorney writes the agreement, and the coverage is set up to match it.
Setup one
Cross-purchase
Each owner owns a policy on each of the other owners.
Often fits: two or three owners of similar ages.
Setup two
Entity redemption
The business owns one policy on each owner.
Often fits: several owners, or owners with big age differences.
When a Lender Asks for Life Insurance
Lenders often want a loan covered in case the owner dies.
- For standard SBA loans not fully secured by collateral, SBA rules generally require life insurance on an owner the business depends on.
- The policy is assigned to the lender, so the lender is paid first, up to what you still owe. The rest goes to the people you name.
- The lender releases the assignment once the loan is paid off.
- A policy you already have may work. Term life is common, since SBA rules say lenders shouldn’t require whole life.
Good to know: your lender sets the amount and handles its own paperwork. Other lenders have their own rules.
Have Someone You Can’t Afford to Lose?
Life insurance can be a reward for staying.
- Executive bonus: the business gives a bonus that pays for a policy the employee owns.
- Split-dollar: the business and the employee share one policy’s cost and benefits.
- Funding deferred pay: the business owns a policy to help pay a key employee extra money later.
These setups are complex. We work with specialists on them, and your tax advisor or attorney should review them.
Want to Offer Life Insurance as a Job Perk?
- We set up group life as part of employee benefits plans, often a flat amount or a multiple of pay.
- Under IRS rules, the cost of up to $50,000 of employer-paid group term coverage is generally not taxable income to the employee.
Term or Permanent?
Term often fits needs with an end date, like a loan. Permanent often fits plans meant to last, like some buy-sell and key employee plans.
Compare term, whole, and universal life.
Not sure which setup fits your business?
A licensed CBIS agent can walk through it with you, with no pressure.
How it works
How to Get Business Life Insurance
No payment required to apply.
You pay nothing until you accept an offer.
- Talk through your business’s needsBy phone or video, we go over who the business depends on and what the coverage should do.
- Compare insurance companiesWe show you options from many insurance companies side by side.
- ApplyA licensed CBIS agent helps with the application, including the employee consent form if needed.
- The insurance company reviews the applicationThey look at the person’s health and role. Some policies need a quick medical exam.
- Accept the offer, then payNothing is due up front.
Business Life Insurance Questions
Is key person insurance tax deductible?
Generally, no. When the business is the beneficiary, what it pays for the policy generally can’t be deducted.
The payout is generally income-tax-free if the notice and consent rules are followed before the policy is issued and the person meets one of the IRS exceptions, such as being a director or highly paid employee at that time.
Your tax advisor or attorney can confirm what applies to your business.
Who owns key person coverage, pays for it, and gets paid?
The business owns the policy, pays for it, and receives the payout. The person covered doesn’t pay, but they must agree in writing before the policy is issued.
How much key person coverage do we need?
There’s no single answer. Common rules of thumb are 5 to 10 times the person’s yearly pay, or the profit tied to them plus the cost to replace them.
The insurance company also limits the amount based on the person’s pay and role.
Cross-purchase or entity redemption?
Cross-purchase often fits two or three owners. Entity redemption is simpler with more owners.
A 2024 Supreme Court ruling, Connelly v. United States, affects how an entity redemption payout can count toward the company’s value for federal estate tax. This mostly matters for larger estates that may owe federal estate tax.
Your attorney and tax advisor can help you choose.
Do we need the employee’s consent to insure them?
Generally, yes. If the business will own the policy and receive the payout, the employee must be told in writing and agree in writing before the policy is issued. Without that, part of the payout may become taxable.
The business also reports these policies to the IRS yearly on Form 8925.
Your tax advisor or attorney can confirm what applies to your business.
Can a life insurance policy be used for an SBA loan?
Often, yes. Many SBA loans generally require it when the loan isn’t fully secured. The policy is assigned to the lender as collateral, and the lender releases the assignment once the loan is paid off.
A policy you already have may work if the amount and length fit.
What happens to key person coverage if the person leaves?
The business still owns the policy, so it can keep it, cancel it, or, with some policies, cash it in or transfer it to the person who left. Each choice can have tax effects, so check with your tax advisor first.
Can you review a policy our business already has?
Yes. We’ll look at whether the amount still fits the business and the loan or agreement it was bought for. Get a free policy review.
Let’s talk about what your business needs.
CBIS has been serving San Diego since 1982. A licensed agent will compare policies with you by phone or video call.
Other questions? Contact us.
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Coverage is subject to the terms of each policy and to approval by the insurance company.
CBIS doesn’t give tax or legal advice.