Key Person Insurance

Key person insurance (sometimes called key man insurance or business-owned life insurance) is a type of life or disability insurance that a business takes out on an essential employee, owner, or executive whose skills, knowledge, reputation, or leadership are critical to the company’s success.

Here’s how it works:
   •   The business owns the policy.
   •    The business pays the premiums.
   •    The business is the beneficiary.

If the key person passes away or becomes disabled, the company receives the insurance payout.

Why businesses use it:
   •   Financial protection – Helps cover lost revenue, recruitment, and training costs to replace the individual.
   •    Business continuity – Provides stability so operations can continue without immediate financial collapse.
   •    Loan & investor confidence – Lenders or investors often require it before providing financing.
   •    Succession planning – Helps fund buy-sell agreements if the key person is also an owner.

Example:
If a small tech startup relies heavily on its founder’s coding expertise and industry connections, the sudden loss of that founder could cripple the business. A key person insurance policy ensures the company has funds to survive, hire replacements, or wind down operations responsibly.

Key Person Insurance vs. Regular Life Insurance: