Key Person Insurance

Key person insurance is a life insurance policy purchased by a business on the life of a critical employee or owner — someone whose death would cause significant financial harm to the company. The business pays the premiums, owns the policy, and is named as the beneficiary. The death benefit compensates the business for lost revenue, recruitment and training costs, loan repayment, and business continuity during the transition period. Key person policies can be term or permanent; permanent policies accumulate cash value that can fund future business needs. Businesses generally must demonstrate insurable interest in the key employee and obtain the employee's consent.