Are you or other key members of your business the driving force behind its success? If you or other partners or colleagues are suddenly absent due to death or disability, Key Person (also called Key Man Insurance) can help your small business regain its ability to proceed—and succeed.
What is the purpose of Key Person Insurance? This Ultimate Guide contains all the information you need to know– what it is, what it does and doesn’t cover, situations where a Key Person policy could help your small business, and information on finding Key Person Insurance at competitive rates.
What is Key Person Insurance?
Key Person Insurance is essentially term life insurance where the business is the beneficiary. A Key Person Insurance policy covers key figures–such as the CEO, founding member(s), top sales executives–or others essential to the ongoing success of the company.
Key Person is designed to help a company rebound from the death or serious disability of any key contributor to the business. Like a life insurance policy, the company is the beneficiary, and funds are used to cover various business expenses, including recruitment and training of new personnel.
Even in instances where there are no key people, Key Person Insurance could help when dissolving a partnership, and assist in buying the other partner's shares. Lastly, many commercial lending institutions require it for a company’s management team.
What Does Key Person Insurance Cover?
Key Person Insurance provides coverage for a specific period of time and is intended to cover the company’s debts, loss of profits, or as a guarantee on business loans. It also covers the replacement and training of new key people.
What Doesn't it Cover?
Key Person Insurance does not cover instances of fraud, misrepresentation, and in some instances, suicide.
What's a Situation My Business Would Need Key Person Insurance?
Any business reliant upon one or several people for its revenue, operations, or sales could use Key Person Insurance.
For example, the famous chef of a world-renowned restaurant becomes seriously ill forcing her to stop cooking. The success of her eatery is largely reliant upon her personality and influence in the community.
A real estate broker's top producing sales executive is killed in a car accident, impacting the agency's ability to cover its expenses and remain in business.
These are just a few of the countless scenarios where a small business would benefit from holding a Key Person insurance policy
How Much Does Key Person Insurance Cost?
Like life insurance, the cost of Key Person Insurance depends on the amount of coverage, the age of the individual(s), the health of the individual(s), the term length, and the industry of the business. For these reasons, it may be difficult to insure an older key person or a key person with a serious illness.
For example, a 10-year, $500K policy for a non-smoking, 40-year-old male business owner in California could be as low as $25 per month. That same business owner at age 60 would cost around $150-$170 per month.
Who Needs Key Person Insurance?
Key Person Insurance isn’t only for the C-suites or boardrooms. If the success of your company is inherent upon an individual or few individuals, Key Person is for you.
Key Person Insurance can cover top salespeople, an employee with a specific skill-set critical to the success of your business, or other members of your team responsible for revenue and growth.
Where to Find Key Person Insurance?
Key Person Insurance is available from numerous insurance providers — brick and mortar as well as online. Key Person Insurance and Embroker are two companies that offer this type of insurance.
Learn more about 12 other types of insurance, take a look at our Ultimate Guide to Selecting Business Insurance.
Disclaimer: Skip does not endorse, nor is affiliated with the companies mentioned in this article. They are referenced here for informational purposes only. Always conduct your own research before purchasing any insurance policy.
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