Key Person Insurance for Business
Key Person Insurance for business is a strategic way to protect your company’s financial future if an essential leader, executive, or employee passes away or becomes disabled. At Diversified Insurance Brokers, we work with more than 100 top-rated carriers and have decades of experience helping businesses design coverage that safeguards operations, revenue, and long-term stability.
What is Key Person Insurance?
Key Person Insurance—sometimes called Key Man Insurance—is a life or disability insurance policy that a business purchases on the life of an essential individual. The business owns the policy, pays the premiums, and is the beneficiary. If the insured key person dies or is disabled, the policy provides a benefit to the company, helping it recover financially and continue operating with confidence. 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 Key Person Insurance Matters
For many companies, one person may carry the bulk of the responsibilities, client relationships, or expertise that drives profitability. Losing that person unexpectedly could impact cash flow, damage business continuity, or even threaten the company’s survival. Key Person Insurance provides a safeguard, allowing your business to weather challenges without sacrificing growth or stability.
Advantages of Key Person Coverage
- Continuity Protection: Keeps your company financially secure after the loss of a key executive.
- Revenue Replacement: Offsets income tied directly to the insured’s role and expertise.
- Investor & Partner Reassurance: Demonstrates financial planning and stability to stakeholders.
- Recruitment & Training Costs: Helps fund the process of finding and onboarding a replacement.
- Loan & Credit Approval: Many lenders require Key Person Insurance for business financing.
How Much Coverage Do You Need?
Coverage levels should be based on the key person’s value to the company—revenue impact, client relationships, or unique skill sets. Use our Life Insurance Quoter below to calculate the amount of protection your business may need and to compare plans across 100+ carriers.
Life Insurance Quoter
Protect Your Business with Key Person Insurance
We’ll help you design coverage that ensures stability, investor confidence, and continuity for your company’s future.
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FAQs: Key Person Insurance for Business
What is Key Person (Key Man) Insurance?
Key Person Insurance is a life (or life & disability) policy that a business takes out on the life of a critical employee whose loss would significantly harm the business. The business owns the policy, pays the premiums, and is the beneficiary of the death benefit.
How does it help a business?
The death benefit helps businesses cover financial loss from losing a key person—such as lost revenue, finding/winning new customers, hiring/training replacement, servicing debts, maintaining credit or investor confidence. It gives the company time to adjust.
How much Key Person Insurance coverage do I need?
There’s no fixed formula, but commonly businesses consider multiples of the key employee’s salary (often 5-10×), the revenue or profit they contribute, cost to replace them, and potential losses during the replacement period.
What types of policies are available (term vs. permanent)?
Term policies are more affordable and cover a defined time period (e.g. 10, 20, 30 years). Permanent policies (whole life, universal, etc.) cost more but build cash value and may offer additional flexibility.
Are Key Person Insurance premiums tax-deductible?
No. In general, if the business owns the policy and is beneficiary, the premiums are paid with after‐tax dollars and are not deductible under U.S. tax law.
Is the death benefit taxable?
Most of the time, death benefits paid to the business from a key person policy are income tax-free under IRS rules. However, there are exceptions and documentation/employee consent may be required.
When should a company consider getting Key Person Insurance?
When one or more individuals in the company are essential to operations: if losing them would disrupt revenue, reputation, key relationships, or ability to obtain financing. Also useful when there are loans or investors whose decision depends on continuity.
