Key Person Insurance – What it Is and Why Your Business Needs It

keyman insurance policy

Every small business has one or two key employees that really drive the success of the company. Whether it’s through sales relationships, intellectual capital, or specialized skills – these people make the company work. Losing a key person to unexpected death or trauma could be a devastating blow to the life of your company. That’s why your business needs Key Person Insurance.

key person insurance

Key Person Insurance is simply a life insurance policy purchased by the business for a key employee.

Here’s how it works:

  • Identify the key person your company simply can’t live without for the long term. In many cases, it’s the owner who keeps everything together – from keeping books to customer relationships, to managing key employees.
  • The business then takes out a life insurance plan on that key employee, paying the monthly premiums as the beneficiary.
  • In the event of the unexpected loss of this key employee, the Key Person Insurance will kick in, helping the company survive the loss of this key person.
  • The business can use the insurance proceeds to cover expenses while it finds a replacement person, pay off debts, pay severance to employees, distribute to investors, or close the business down in an orderly fashion.
key person life insurance
Source: paradigm life

If you are a sole proprietorship or the sole owner/employee of your business, you won’t need key person insurance. Traditional life insurance will work to cover your family/beneficiaries.

Key Person Insurance is vital for companies with multiple owners/employees that depend heavily on a key individual. Having Key Person Insurance can be the difference between the immediate death of a company and the company surviving and recovering from an unexpected loss of a key employee.

If your business depends heavily on a key employee, you need to consider Key Person Insurance.

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