It’s perhaps the last thing a person who owns a business wants to consider, but it’s among one of the most important: What happens if the owner or other key player in the business dies? Could their family navigate the first few months without them? Would their employees be able to continue in the owner’s absence? One way to address this risk is a special type of insurance called “key person insurance.”


Standard types of disability and life insurance policies typically are purchased to make sure the family of an individual is protected if something happens to the person covered .

Key person insurance is purchased to protect the business if the owner or other key leaders die. Who are key people? Anyone whose death would leave a major void in the company’s day-to-day operations.


Key person life insurance is a type of policy that can protect a business from the financial dip that can occur if there’s an unexpected loss of an owner, manager or partner.


Reasons why you need key person insurance:

Cover lost revenue

If you or another manager in your business are the only people who know how to perform a certain task in the business, then key person insurance is critical. During the time immediately following an unexpected loss, key person insurance will kick in to help cover expenses while the business regroups.

Pay off loans

Lenders may consider calling a loan if a key person in a business dies. If that happens, the insurance would help pay off any balance.

Key person insurance overview:

  • The amount of coverage should be based on how much money you’d need to cover your business during the period of time it will take to replace the key person.
  • Get quotes on different amounts, perhaps from $100,000 up.
  • Balance budget constraints with how much the company would need to survive while bringing a new person up to speed.
  • The business typically pays annual premiums and is the beneficiary under the policy. If a key person unexpectedly dies, the company would receive the insurance payoff.
  • Some businesses offer to distribute part of the pay out with the key person’s spouse as a benefit of employment. (Note: Discuss such a life insurance policy with the employee before setting it up as it may appear that your business is trying to benefit from the death of an employee. There are other types of benefit-related life insurance policies that may be a better option.)
  • Typically, the insurance is a term policy for a specific amount and length of time.
  • As with any important financial or legal decision, seek advice from your trusted business advisors as specific strategies will hinge on your personal situation.
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