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. Most key person policies are written as term life insurance, since the goal is to cover the years that person is most central to the business rather than to build cash value.

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. For owners running their company on their own, this kind of policy is often bought alongside other coverages packaged into sole proprietor business insurance. 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. Before buying a policy, businesses usually compare quotes from several life insurance companies to find the right mix of coverage amount and price. This helps ensure that the sudden loss does not negatively impact the business’s profitability.