Protect your business from financial disruption
What Happens to Your Business If a Key Person Is Gone?
Key person life insurance helps protect your business if an owner, partner, or essential employee passes away. It provides financial support when your business needs it most.
What Is Key Person Life Insurance?
Key person life insurance is a policy taken out by a business on an important individual—such as an owner, partner, or key employee.
- The business owns the policy
- The business pays the premiums
- The business receives the payout
This provides financial protection if that person is no longer able to contribute to the business.
Why It Matters for Your Business
Many businesses depend heavily on one or two key individuals.
If something unexpected happens, the impact can include:
- Loss of revenue
- Disruption to operations
- Difficulty replacing specialized skills
- Strain on employees or partners
Key person insurance helps your business stay stable during a difficult transition.
Who Should Consider Key Person Insurance?
This type of coverage is worth considering if your business relies on:
- A business owner or founder
- A key partner
- A top salesperson or revenue driver
- Someone with specialized knowledge or relationships
If losing one person would significantly impact your business, this coverage may be important.
How It Works in Real Life
Imagine a business where one partner is responsible for bringing in most of the revenue.
If that person passes away:
- Revenue could drop quickly
- The business may struggle to replace them
- Cash flow could become an issue
A key person policy provides a financial cushion to help:
- Cover lost income
- Recruit and train a replacement
- Keep the business running
How Much Coverage Should You Consider?
Coverage amounts vary based on the role and impact of the individual.
Some common approaches include:
- A multiple of annual revenue generated by that person
- The cost to replace and train a successor
- The financial impact of lost relationships or expertise
I can help you estimate a reasonable coverage amount based on your situation.
What Type of Policy Is Used?
Key person insurance is typically structured using:
Term Life Insurance
- Lower cost
- Coverage for a specific period
- Often used for growing businesses
Permanent Life Insurance
- Lifetime coverage
- Can offer additional planning flexibility
- Higher cost
👉 Learn more about term life insurance and whole life insurance.
How Are Payouts Taxed?
In many cases, the death benefit from a key person policy is received tax-free by the business.
However, tax treatment can vary depending on how the policy is structured. It’s important to coordinate with a tax professional when setting up coverage.
Simple, Strategic Guidance
As an independent advisor, I help business owners:
âś” Evaluate their exposure to risk
âś” Determine if key person coverage makes sense
âś” Compare options from multiple carriers
âś” Keep the process simple and efficient
Protect the people your business depends on most
Key Person Insurance: What Every Business Owner Should Know
Key Person Insurance helps protect your business from the financial impact of losing a critical employee or owner. Here are the answers to the most common questions business owners ask.
Who owns the policy in key person insurance?
The business typically owns the policy, pays the premiums, and receives the benefit.
Can this be used for business partners?
Yes—key person insurance is often used to protect against the loss of a partner or owner.
Is this the same as a buy-sell agreement?
No. Key person insurance protects the business from financial loss, while buy-sell agreements are used to transfer ownership.
Is key person insurance expensive?
Costs vary based on age, health, and coverage amount, but many policies are more affordable than expected—especially with term insurance.
Protect What You’ve Built
If your business depends on key people, it may be worth exploring your options.