Which of the following statements about Key Person Life Insurance is true?

Key Person Life Insurance is designed to protect a business from the financial impact of losing a key employee whose skills and contributions are critical to the company's success. When considering the characteristics of this type of insurance, one notable aspect is how the death benefits are treated tax-wise.

The statement that death benefits are not taxable to the company is accurate because, in most cases, the proceeds from a key person life insurance policy are received tax-free by the company. This provides a significant advantage as it means that the business can utilize the full amount to compensate for the financial loss incurred from the key person's death. These funds can be used for various purposes, such as recruiting a replacement, covering lost revenue, or stabilizing the business during a transition period.

In contrast, premiums paid for the policy are typically not tax-deductible as a business expense. The death benefit is also generally not taxable to the estate of the deceased key person under federal law, which adds another layer of financial benefit to the arrangement. While underwriting is often involved in obtaining coverage, especially for higher amounts, it's critical to understand that coverage typically does require some level of underwriting, which distinguishes it from options that might not require such evaluation. Thus, the statement correctly identifies the favorable tax treatment of death