Jeffrey Wade
Key person life insurance is a type of life insurance policy that a company purchases on the life of an owner, a top executive, or another individual considered critical to the business. The company is the beneficiary of the policy and pays the premiums. This type of insurance is also known as 'key man' or 'keyman' insurance, 'key woman insurance' and 'business life insurance'. It is designed to pay a business upon the death of the insured, as opposed to that person's beneficiaries.
| Characteristics | Values |
|---|---|
| Who is it for? | The key person could be a company owner, partner, or top executive, or another individual considered critical to the business. |
| Who buys it? | The business buys the policy, pays the premiums, and is the beneficiary. |
| Who is covered? | The key person, who is typically indispensable to the company. |
| What does it cover? | The death of the key person, and sometimes disability. |
| What is the money used for? | Paying off debts, offsetting day-to-day operating expenses, supplementing lost revenues until a replacement can be hired, or, in extreme cases, distributing money to investors, paying severance to other employees and closing the business down. |
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What You'll Learn
Who does it cover?
Key person life insurance is purchased by a business for an employee whose absence would be a financial burden or even devastating to the company. This could be the business owner, a partner, or a top executive, but it could also be an employee with a highly specialised role or an outsized share of the firm's revenue.
The insurance policy is designed to pay the business upon the death of the insured, rather than the person's beneficiaries. The business buys the policy, pays the premiums, and is the beneficiary. The insurance proceeds can be used to pay off debts, cover operating expenses, supplement lost revenue, or even pay severance to other employees and close the business down.
The policy can also include disability coverage, which can help if a key employee is disabled and unable to work. This type of insurance is also known as 'key man' or 'key woman' insurance, or 'business life insurance'.
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Who pays for it?
Key person life insurance is a type of life insurance policy that a company purchases on the life of an owner, a top executive, or another individual considered critical to the business. The company is the beneficiary of the policy and pays the premiums. This type of insurance is also known as 'key man' or 'keyman' insurance, 'key woman insurance', and 'business life insurance'.
The business buys a key person policy, pays the premiums and is the beneficiary. If the covered employee dies, the business gets the insurance payoff.
Key person insurance is needed if that person's death would be devastating to the future of the company. The policy provides funds that can help ensure business continuity if a key employee dies or becomes disabled, provided the policy has an additional disability rider.
Small businesses often have at least one employee with a unique skillset, stellar reputation, loyal client base, or an all-star name, whose absence would devastate the company. If you have an owner, partner, executive, or other worker who is indispensable, you may want to consider key person life insurance to protect your business from the potential loss of this essential employee.
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Who benefits from it?
Key person life insurance is a type of insurance policy that a business takes out on its most valuable employee or employees. The business pays the premiums and is the beneficiary. The policy provides funds that can help ensure business continuity if a key employee dies or becomes disabled.
The key person could be a company owner or partner, or it could be an indispensable employee, such as someone with highly specialized knowledge or skills. A key employee could also be the person who brings in a large share of the firm's revenue.
The business benefits from key person life insurance as it can help to keep the business afloat if a key employee dies or becomes disabled. The insurance proceeds can be used in a variety of ways, including paying off debts, offsetting day-to-day operating expenses, supplementing lost revenues until a replacement can be hired, or, in extreme cases, distributing money to investors, paying severance to other employees and closing the business down in an orderly manner.
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How can the money be used?
Key person life insurance is a type of life insurance policy that a company purchases on the life of an owner, a top executive, or another individual considered critical to the business. The company is the beneficiary of the policy and pays the premiums. This type of insurance is needed if that person's death would be devastating to the future of the business.
The money from key person life insurance can be used in a variety of ways, including:
- Paying off debts
- Offsetting day-to-day operating expenses
- Supplementing lost revenues until a replacement can be hired
- Distributing money to investors
- Paying severance to other employees
- Closing the business down in an orderly manner
Key person life insurance helps safeguard a small business if an imperative employee dies or becomes disabled. It provides funds that can help ensure business continuity.
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What is it also known as?
Key person life insurance is also known as 'key man' or 'keyman' insurance, 'key woman insurance' and 'business life insurance'. It is a type of life insurance policy that a company purchases on the life of an owner, top executive, or another individual considered critical to the business. The company is the beneficiary of the policy and pays the premiums. This type of insurance is needed if the person's death would be devastating to the future of the company.
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Frequently asked questions
Key person life insurance is a life insurance policy that a company purchases on the life of an owner, a top executive, or another individual considered critical to the business.
A key person is someone who is crucial to the company's survivability. This could be the business owner, a partner, or an indispensable employee with a highly specialised knowledge or skill set.
If the covered employee dies, the business gets the insurance payoff. The proceeds can be used to pay off debts, offset day-to-day operating expenses, supplement lost revenues until a replacement can be hired, or, in extreme cases, distribute money to investors, pay severance to other employees and close the business down.
Key person insurance is purchased by a business on an essential employee, with the employee's written consent.
