Key Person Insurance
Key person insurance helps a company withstand the loss of someone whose knowledge, relationships, or leadership drives revenue and operations.
The business owns the policy, pays the premiums, and receives the benefit. Funds can bridge cash flow, pay debt, hire and train a replacement, or wind down in an orderly way if that becomes the prudent choice.
How Key Person Insurance Works
Your company applies for life insurance on the owner or another essential employee with that person’s written consent. The business is the applicant, owner, and beneficiary. If the insured dies, the policy pays the company.
Coverage can be term or permanent, sized to the financial risk you want to offset, and coordinated with your lender or investors when required.
When To Consider Key Person Insurance
Key person coverage is useful when the sudden loss of one person would create material risk.
Common triggers include a founder who drives sales, an engineer with unique IP knowledge, a rainmaker with major client relationships, or an executive whose signature is tied to banking and credit facilities.
What The Policy Can Cover
- Revenue disruption and lost margin during the transition
- Recruiting fees, signing incentives, and training for a replacement
- Project delays or cancellations tied to the key person
- Debt service, loan covenants, and investor obligations
- Retention incentives for the remaining team during a fragile period
Choosing A Policy Type
Riders such as disability or critical illness may be available. We will review suitability and costs for each option.
Term Life
Term life offers high coverage for a set period and is often the most cost-effective choice for pure business protection.
Permanent Life
Permanent life can be considered when long time horizons, collateral needs, or executive compensation strategies are involved.
Sizing Key Person Coverage
We help you quantify exposure using several lenses: contribution to revenue or profit, replacement timeline and hiring costs, outstanding loans and personal guarantees, and the value at risk in active contracts or product roadmaps.
The result is a coverage amount and term that reflect your actual business risk.
Understanding Taxes & Documentation
Premiums are generally not deductible. Death benefits are generally received income tax free when notice and consent rules are followed.
We prepare the carrier’s notice and consent forms and coordinate with your CPA to confirm treatment for your situation.
Protect Your Business From Key Person Risk
Request a short consultation. We will size your exposure, compare term and permanent options, prepare notice and consent documents, and coordinate underwriting so coverage is in place before it is needed. You will leave with clear recommendations and a practical timeline.