Question

All of these statements concerning a key employee life policy are true except:

a) The policy provides financial protection for the employee's family.
b) The premiums are tax-deductible for the employer.
c) The policy's benefits are taxable for the employee.
d) The coverage extends beyond the employee's retirement.

Answer 1

The false statement is that the policy provides financial protection for the employee's family; in reality, it protects the company. Premiums are not tax-deductible; the death benefit is typically tax-free for the company, and the employee does not receive policy benefits.

Step-by-step explanation:

The subject matter of the question relates to a key employee life policy, which is an insurance product taken out by a business on the life of an employee who is vital to the company's operations. The correct answer to the student's question is as follows: the statement 'The policy provides financial protection for the employee's family' is false in the context of a key employee life policy.

Concerning the tax implications, the premiums paid for a key employee life policy are not tax-deductible for the employer as they are seen as a form of compensation. Additionally, the benefit that the company receives upon the death of the employee is generally tax-free.