Key Man Policy for Business
A Key Man Policy for business is designed to protect your company if a vital owner, executive, or employee unexpectedly passes away or becomes disabled. At Diversified Insurance Brokers, we partner with over 100 top-rated carriers and bring decades of expertise to help safeguard your business from financial disruption. With the right policy in place, your company gains stability, continuity, and confidence in the face of unexpected loss.
What is a Key Man Policy?
Also known as Key Person Insurance, this coverage is a life or disability insurance policy purchased by a business on the life of a critical individual. The company is the policy owner, premium payer, and beneficiary. If the insured key person dies or becomes disabled, the policy provides a payout to the business to cover financial gaps, maintain operations, and support long-term goals. Keep in mind, this is different than Buy Sell Life Insurance. If you’re curious of the differences learn more about Key Person vs. Buy Sell Insurance.
Why Businesses Need Key Man Insurance
Losing a key individual can disrupt revenue, weaken client relationships, and put growth plans on hold. A Key Man Policy ensures your business has the financial resources to overcome these challenges. This protection is especially crucial for small and mid-sized businesses where one person often carries significant responsibilities.
Benefits of a Key Man Policy
- Business Continuity: Provides funds to keep the business operating smoothly after a loss.
- Protect Cash Flow: Replaces revenue tied directly to the insured’s expertise.
- Investor Confidence: Shows stakeholders you have planned for potential risks.
- Recruitment Support: Covers the costs of finding and training a replacement.
- Credit & Loans: Many lenders require Key Man coverage for financing approval.
How Coverage is Determined
The right amount of coverage depends on the insured’s impact on revenue, client relationships, and specialized skills. Use our Life Insurance Quoter below to compare options and calculate the right protection for your business.
Life Insurance Quoter
Secure Your Business with a Key Man Policy
We’ll help you compare coverage from 100+ carriers to protect your company’s future against unexpected loss.
Questions? Call 800-533-5969 or
FAQs: Key-Man Insurance for Your Business
What is key-man (key person) insurance?
Key-man insurance is a business-owned life (or life + disability) policy on an essential employee, partner, or owner whose death or disability would create a financial threat to the business. The business owns the policy, pays the premiums, and is the beneficiary. The payout helps the business cover costs like recruiting a replacement, stabilizing finances, or paying off debts.
How much coverage should I get for a key person?
You should determine how much coverage based on the financial impact of losing that person. Consider lost profits, recruitment/training costs, time to replace, disruption in revenue, and what loans or obligations you might need to cover. A common rule of thumb is salary + estimated contribution × multiple (often 5× or more).
Is the premium tax-deductible?
No. In general, premiums for key-person life insurance are not tax-deductible business expenses in the U.S. The IRS considers these as business-owned life insurance, and special rules apply. The death benefit (if properly structured) is often paid tax-free to the business.
When should a business consider getting key-person insurance?
You should consider it if there are one or few people whose loss (death or disability) would severely harm your operations, disrupt major revenue streams, or hinder ability to repay loans. Situations include getting financing, preparing for succession, or when key individuals hold specialized skills or relationships.
What type of policy is best: term or permanent?
Term policies are often chosen for key-person insurance because they are more affordable and cover the period of greatest risk (such as until retirement or until succession planning is in place). Permanent policies cost more but build cash value, which may give additional flexibility (e.g. borrowing, loan collateral, or long-term business planning).
What happens if I no longer need the policy (key person leaves or retires)?
If the key person leaves or retires, you may cancel the policy, convert ownership, or reassign it depending on the contract. Some businesses keep it for other essential roles. Always check policy terms and state laws or tax implications before making changes.
