Key Person Insurance

What Does Key Person Insurance Mean?

Key person insurance is a life insurance policy purchased by an organization or business on the life of a key executive, employee, partner, or proprietor to protect against the potential loss of value, revenue, or profits due to their death. The business itself is typically the beneficiary of the policy.

This type of insurance is also known as key man insurance or key employee insurance.

Insuranceopedia Explains Key Person Insurance

A key person is someone whose overall contribution is crucial to the operations of an organization. In a small business, the key person is often the proprietor. In a larger organization, it could be a partner, principal shareholder, executive, or key employee. For example, if a key employee in a large organization is injured, becomes ill, or passes away, the payout from the policy can be used to cover the costs of recruiting and hiring a replacement. This helps ensure that the sudden loss does not negatively impact the business’s profitability.