In the context of Key Person Insurance, which of the following is the most significant tax consideration for a corporation when a claim is paid out due to the death of the insured key employee?

Question: In the context of Key Person Insurance, which of the following is the most significant tax consideration for a corporation when a claim is paid out due to the death of the insured key employee?

Answer options: ✅ The death benefit is generally tax-exempt to the corporation.

• The premiums paid by the corporation are deductible for tax purposes.
• The cash value growth in the policy is taxed annually.
• The death benefit is considered taxable income to the corporation.

Correct answer: The death benefit is generally tax-exempt to the corporation.

Explanation: According to the Income Tax Act, the death benefit of a life insurance policy, including Key Person insurance, is generally received tax-free by the corporation, providing liquid funds for recovery.