Final answer:
The main tax advantage of key-person life insurance is that the death proceeds received by the company are nontaxable. While premiums are not tax deductible, the cash value increase can also be a financial benefit. Borrowing against the policy's cash value is possible but must be paid back with interest.
Step-by-step explanation:
The tax advantage of key-person life insurance is that the death proceeds are nontaxable. This type of policy is designed to protect the company against the financial loss it may suffer if a crucial member of the team, or 'key person,' passes away. While the premiums are not tax deductible, the policy's main benefit comes from its ability to provide financial relief without additional tax burden. Moreover, the policy may have a cash value component, which can be used by the company or the individual. Like other life insurance cash value accounts, this cash value can grow and serve as a financial resource. Additionally, as is common in the insurance industry, these policies can allow policyholders to borrow against them, which must be repaid with interest.