Can key person insurance premiums be paid from business funds or do they require personal payment?

Key person insurance premiums are paid entirely from business funds, not personal funds, because the policy is a business expense and business asset. This is a fundamental characteristic distinguishing key person insurance from personal insurance. The business - whether a company, partnership, or trust - is the policy owner, controls the policy, and is responsible for premium payments. Premiums are paid from business operating accounts or cash flow just like other business expenses such as rent, wages, or equipment. This arrangement makes sense because the business receives the benefit if a claim occurs, so the business bears the cost. The tax treatment reinforces this: when premiums are for revenue purposes, they're claimed as a tax-deductible business expense, reducing the business's taxable income. Even when premiums are for capital purposes and not tax-deductible, they're still paid by the business as a non-deductible business expense. The key person being insured doesn't personally pay the premiums, and the premiums aren't treated as a fringe benefit to the key person for tax purposes. This contrasts with personal life insurance or income protection where the individual pays premiums from their personal income (unless provided as an employer benefit). For cash flow planning, businesses should budget for key person insurance premiums as an ongoing operational cost, typically paid monthly or annually depending on the payment structure chosen. Some businesses establish dedicated insurance reserves to ensure premium funds are available, particularly for larger policies with substantial annual costs.