What is key person insurance and how does it work?

Key person insurance is a life insurance policy that a business purchases on an employee or owner whose death would significantly harm the company's finances or operations. The business pays the premiums and is typically both the policy owner and beneficiary. If the covered individual passes away, the death benefit goes to the company.

The proceeds can be used for a wide range of business purposes: covering revenue losses during the transition period, funding a search for a qualified replacement, paying off business debts, compensating clients for missed deliverables, or stabilizing operations to prevent bankruptcy.

In Nevada, key person policies are common across industries—medical practices protecting physician owners, tech companies insuring founders, and professional services firms covering partners who hold critical client relationships.

There is no standard formula for the right coverage amount, but common approaches include 5–10 times the key person's annual compensation, or the estimated revenue their departure would impact over 2–3 years. Both term and permanent life insurance can serve as key person policies, depending on the time horizon and whether the business also wants to accumulate cash value.

Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Agents in our network can help business owners evaluate appropriate coverage amounts and structures.