Which of the following statements regarding a key employee life insurance policy is NOT true?

• A. The policy is intended to protect the business from financial loss due to the death of a key employee.
• B. Premiums paid by the company are generally tax-deductible as a business expense.
• C. The company is the beneficiary of the policy.
• D. The company owns the policy and pays the premiums.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of key employee life insurance. This type of policy is designed to protect a business from financial loss due to the death of an employee who is critical to the company's operations or profitability.
2. Step 2: Analyze the tax implications of premiums paid for key employee life insurance. Generally, premiums paid by the company for such policies are NOT tax-deductible as a business expense because the company is the beneficiary of the policy.
3. Step 3: Review the ownership and beneficiary details of the policy. In a key employee life insurance policy, the company typically owns the policy, pays the premiums, and is the beneficiary.
4. Step 4: Compare the statements provided in the question to the general rules of key employee life insurance policies. Identify the statement that contradicts the standard practices or rules.
5. Step 5: Conclude that the statement 'Premiums paid by the company are generally tax-deductible as a business expense' is NOT true, as it conflicts with the tax treatment of key employee life insurance premiums.