Key Person Life Insurance for Executives
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Key Person Life Insurance for Executives
At Diversified Insurance Brokers, we specialize in helping companies safeguard their most valuable leaders. Key person life insurance ensures your business has financial protection if a top executive, founder, or rainmaker unexpectedly passes away. With access to 100+ carriers, we provide tailored solutions to protect your business continuity and stability.
What Is Key Person Life Insurance?
Key person life insurance is a policy owned by a business that insures the life of an essential executive. If that person dies, the business receives the death benefit to cover lost revenue, recruit and train a replacement, or maintain investor and lender confidence.
Why Executives Need Key Person Coverage
Executives often drive strategy, growth, and financial relationships. Losing them can cause disruption that threatens operations and revenue. Key person insurance provides a safety net, giving businesses time and resources to adapt.
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Case Example: Protecting a CFO
A consulting firm depended on its CFO to manage finances and lender relationships. They purchased a $2 million key person policy to prepare for unexpected loss. When the CFO suddenly passed away, the insurance payout funded an interim hire, preserved credit lines, and stabilized client confidence—preventing a major financial setback.
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Who Is a Good Fit for Key Person Life Insurance?
- Small and mid-sized businesses that depend on one or two executives for revenue and relationships.
- Startups where founders’ expertise or contacts drive growth and funding.
- Established firms where executives maintain investor, lender, or client trust.
Policy Structures
Most companies select term coverage for affordability, while permanent coverage may be considered if the executive’s role is long-term or tied to financing agreements. Coverage amounts generally align with expected revenue impact, replacement costs, or outstanding loans.
Case Example: Startup Founder
A tech startup raised millions in funding due to its visionary founder. To reassure investors, the board required a $5 million key person policy. When the founder had a sudden health crisis, the insurance coverage protected the company’s valuation and allowed for the recruitment of an experienced CEO—keeping the business on track.
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FAQs: Key Person Life Insurance for Executives
What is Key Person Life Insurance for Executives?
It’s a business-owned life insurance policy taken out on a senior executive whose unexpected death would create financial risk for the company. The business owns the policy, pays premiums, and is the beneficiary of the death benefit, which helps protect operations, revenue, and stability.
Why is this type of insurance especially important for executives?
Executives often have outsized responsibilities—relationships, leadership, decision-making, revenue generation. Losing one can cause larger disruption, so the coverage helps mitigate risks like lost profit, replacement costs, investor or lender confidence, or business continuity during transitions.
How much insurance should a company purchase for an executive?
Coverage should reflect the executive’s contribution plus costs incurred if they are lost. Factors include salary & bonuses, revenue impact, cost to recruit and train a replacement, time to fill the role, and any debts or obligations. Many businesses use multiples of their compensation or revenue tied to the executive.
Term vs. Permanent – which is better for executives?
Term policies are more affordable and good for covering transient risk periods. Permanent (whole, universal, etc.) may cost more but build cash value, offer more flexibility, and may align with long-term planning or executive bonus strategies.
Are premiums tax deductible?
Generally, no. Premiums paid by the business for key person life insurance are usually not deductible as business expenses under U.S. tax law. However, death benefits are often received tax-free (depending on how the policy is structured).
What underwriting requirements apply for executives?
Underwriting usually includes health and lifestyle questionnaires, medical exams (depending on policy size and health), verification of the executive’s income/role, and assessment of risk due to age or health status. Some carriers may offer no-exam options in limited cases.
Disclaimer: Availability, product details, and tax treatment vary by state and by insurance carrier. This content is for educational purposes only. Consult a tax or legal professional for your specific situation.
