Key Person Life Insurance
Protect your business from the financial impact of losing a critical owner, executive, rainmaker, or technical specialist.
The Planning Challenge
Could Your Business Continue Operating Without Its Most Important Employee?
Many businesses depend on a small number of individuals whose leadership, expertise, client relationships, or revenue generation contribute significantly to the company’s success. While owners often insure against property damage, liability claims, and other operational risks, the loss of a key person is frequently overlooked.
Without a plan in place, the death of a critical employee, executive, or founder can create financial strain, disrupt operations, and impact the long-term value of the business.
Revenue
Disruption
The loss of a top producer, rainmaker, or executive can affect revenue, profitability, and client retention.
Leadership
Gap
Replacing specialized knowledge, strategic leadership, or industry expertise may take significant time and resources.
Stakeholder
Confidence
Banks, investors, and business partners may view the loss of a key individual as a significant risk to the company’s future performance.
Business
Continuity
Continuity
Additional capital may be needed to stabilize operations, recruit talent, and support a successful transition.
What Is Key Person Life Insurance?
Key person life insurance is a life insurance policy purchased by a business on the life of an employee, executive, or owner whose death would create a significant financial impact on the organization.
The business typically owns the policy, pays the premiums, and is named the beneficiary. If the insured individual dies, the business receives the death benefit, providing liquidity that can help stabilize operations and support the transition.
Key person life insurance can be used to offset lost revenue, reassure lenders and stakeholders, recruit and train a replacement, satisfy debt obligations, and help preserve the value of the business during a period of uncertainty.
Key Benefits
- Provides immediate liquidity to the business
- Reduces the financial impact of losing a key employee
- Supports business continuity and transition planning
- Can strengthen lender and stakeholder confidence
How It Works
A Financial Safety Net For Your Business
Key person life insurance helps provide financial protection when the unexpected occurs. By identifying critical employees and securing appropriate coverage, businesses can create liquidity that helps support operations, maintain confidence, and navigate a leadership transition.
Business Continuity Starts With Protection.
Key person life insurance provides liquidity that can help businesses navigate revenue disruption, replacement costs, lender concerns, and leadership transitions.
1
Identify Key Employee(s)
Determine which owner, executive, or employee would create the greatest financial impact if they were no longer part of the business.
2
Evaluate Exposure
Assess potential revenue loss, replacement costs, debt obligations, and the effect on business value and stakeholder confidence.
3
Implement Coverage
The business purchases and owns a life insurance policy designed to address the financial risks associated with the loss of the key person.
4
Create Business Liquidity
If the insured individual dies, the business receives the death benefit, providing capital to help stabilize operations and support a successful transition.
Who May Benefit
Businesses Often Depend On More People Than They Realize
Many businesses rely on individuals whose leadership, expertise, relationships, or revenue generation contribute significantly to the organization’s success.Â
When the loss of one person could create a material financial impact, key person life insurance may deserve consideration.
Founder-Led
Businesses
The owner drives strategic decision-making, key client relationships, or business development.
Technical
Specialists
Specialists
The business depends on specialized expertise, intellectual capital, or industry knowledge.
Revenue-Generating
Executives
Executives
A key executive, sales leader, or rainmaker contributes significantly to company revenue.
Businesses With
Debt or Investors
Debt or Investors
Lenders, investors, or business partners may require protection against the loss of a key individual.
Key Considerations
Structuring Coverage Around Your Business’s Needs
The right policy design depends on the financial impact of losing a key employee, the company’s objectives, and how the coverage will be used if a loss occurs.
Coverage Amount
Estimate the financial impact of losing a key employee by evaluating lost revenue, replacement costs, debt obligations, and other business risks.
Policy Structure
Term insurance may be appropriate for temporary needs, while permanent coverage can support longer-term business planning objectives.
Periodic Review
As the business grows and leadership responsibilities evolve, coverage should be reviewed to ensure it remains aligned with current needs.
Common Questions
Frequently Asked Questions
Whether you’re evaluating new coverage or reviewing an existing policy, these answers address some of the most common questions business owners ask about key person life insurance.
What is key person life insurance?
Key person life insurance is a policy purchased and owned by a business on the life of an employee, executive, or owner whose loss would have a significant financial impact on the organization. The business typically pays the premiums, owns the policy, and is named as the beneficiary.
If the insured individual dies, the death benefit provides liquidity that can help the business stabilize operations, replace lost revenue, recruit and train a successor, satisfy financial obligations, and maintain confidence among lenders, investors, customers, and employees.
Who should be considered a key person?
A key person is anyone whose knowledge, leadership, relationships, or specialized expertise is essential to the success of the business. While owners are often insured, key person coverage may also be appropriate for executives, top sales producers, technical specialists, researchers, or other employees whose absence would materially affect operations or profitability.
Rather than focusing solely on job title, businesses should consider the financial impact that losing a particular individual would have on the organization.
How much key person life insurance is appropriate?
There is no one-size-fits-all formula. The appropriate amount of coverage depends on several factors, including projected lost revenue, replacement and recruiting costs, outstanding debt obligations, contractual commitments, and the time required for the business to recover.
A comprehensive analysis helps determine a coverage amount that reflects the potential financial exposure rather than relying on arbitrary multiples of salary or revenue.
Is the death benefit taxable?
In many cases, life insurance death benefits are received by the business free of federal income tax. However, businesses must comply with applicable notice and consent requirements under federal tax law, and certain ownership or transfer arrangements may affect the tax treatment.
Because tax rules can vary based on the circumstances, businesses should work with their tax advisor and legal counsel when implementing a key person life insurance strategy.
Is key person insurance different from buy-sell insurance?
No. Although both involve life insurance, they serve different purposes.
Key person life insurance protects the business by providing liquidity following the loss of a critical employee or owner. Buy-sell life insurance, on the other hand, provides funding to facilitate the transfer of ownership interests between business owners under a buy-sell agreement.
Many closely held businesses benefit from having both strategies in place because they address different planning objectives.
Should key person life insurance be reviewed periodically?
Yes. Businesses change over time, and the financial impact of losing a key employee can change as well. Growth, new debt, changing leadership responsibilities, acquisitions, and evolving business objectives may all affect the amount and type of coverage that is appropriate.
Regular reviews help ensure that existing policies continue to align with the company’s current needs and long-term planning goals.
Protect the People Your Business Depends On
Every business has individuals whose leadership, expertise, and relationships are difficult to replace. We help business owners evaluate financial exposure, determine appropriate coverage, and structure key person life insurance around broader business continuity objectives.
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