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What if your best sales person is not there any more?
Many of our clients bundle multiple insurance policies for convenience, discounts, and broader protection. Explore these other personal insurance options.
Replacing a key person takes time and money and could cost the business valuable clients during the transition. Key person life insurance offers a death benefit that can help cover financial losses that occur at the death of a key person. This helps assure continuity of the business for employees, customers and creditors.
Key person life insurance, sometimes called key man life insurance, is a policy that a business purchases on the life of an owner, executive, or other employee whose knowledge, leadership, or expertise is critical to the company's success. The business owns the policy, pays the premiums, and is typically the beneficiary.
If the insured individual passes away, the death benefit can help the business recover financially while replacing lost revenue, recruiting a successor, paying debts, or continuing operations during a difficult transition.
Businesses should consider key person life insurance if they rely heavily on one or more individuals whose absence would significantly affect operations or profitability. This often includes business owners, partners, executives, top salespeople, physicians, engineers, and employees with specialized knowledge or client relationships.
If losing one person could disrupt your business or create financial hardship, key person insurance may be an important part of your risk management plan.
The business purchases a life insurance policy on a key employee after obtaining their consent. The business pays the premiums, owns the policy, and is generally the beneficiary. If the insured person dies while the policy is in force, the death benefit is paid to the business.
The proceeds can be used for any business purpose, including hiring and training a replacement, paying operating expenses, satisfying outstanding loans, or maintaining cash flow during the transition.
The amount of coverage depends on the individual's value to the business, annual revenue, outstanding business debt, replacement costs, and the potential financial impact of losing that person. Some businesses purchase coverage equal to several years of the employee's compensation, while others calculate coverage based on projected financial losses.
An insurance professional can help determine an appropriate coverage amount based on your company's specific circumstances.
In most cases, premiums paid for key person life insurance are not tax deductible when the business is the policy beneficiary. However, death benefits are often received income tax-free under current tax laws, provided certain requirements are met.
Because tax rules can be complex, business owners should consult their accountant or tax advisor regarding the tax treatment of key person life insurance.
Absolutely. Small businesses are often more dependent on a single owner or employee than larger organizations. Losing a founder, lead technician, top salesperson, or other key employee can have an immediate impact on revenue, customer relationships, and daily operations.
Key person life insurance can provide the financial stability needed to help the business recover and continue serving customers.
Yes. Some banks and lenders require businesses to purchase key person life insurance before approving certain business loans. The policy helps protect the lender by providing funds that may be used to repay outstanding debt if the insured individual dies unexpectedly.
Having key person coverage may also strengthen your company's financial planning and improve lender confidence.
Although both involve life insurance, they serve different purposes. Key person life insurance protects the business from financial losses caused by the death of an important employee or owner. Buy-sell agreement funding uses life insurance to provide money for the remaining owners to purchase a deceased owner's ownership interest.
Many businesses carry both types of coverage as part of a comprehensive business continuity plan.
Yes. Many businesses also purchase key person disability insurance, which provides financial protection if a key employee becomes disabled and is unable to work for an extended period. Disability can often have an even greater financial impact than death because the business may continue paying salary and benefits while trying to replace the employee.
Combining life and disability coverage creates a more complete business protection strategy.
Businesses should review their key person life insurance annually and whenever major changes occur. Hiring executives, promoting employees, expanding operations, increasing revenue, taking on business loans, or changes in business ownership may all affect your insurance needs.
Regular reviews help ensure your coverage keeps pace with your company's growth and continues to protect the people who are most critical to your success.
