Key Person Insurance

What Does Key Person Insurance Mean?

Key person insurance is a life insurance policy taken out by an organization or business on the life of a key executive, employee, partner or proprietor to protect against the loss of value, revenues or profits of the business. The former is also the beneficiary of the policy.

It is also referred to as the key man insurance or key employee insurance.

Insuranceopedia Explains Key Person Insurance

A key person is someone whose overall contribution is important in the operations of an organization. In a small business, the key person would likely be the proprietor. In a large organization, it would be the partner, principal shareholder, executive or a key employee. For instance, in the latter case, a key employee is injured, has poor health or dies; the payout from the policy would be used to offset the cost of recruiting and hiring a replacement. This ensures the sudden loss does not affect profitability of the business.