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 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.

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.