What Is Key Person Life Insurance?
Key person insurance is life (and sometimes disability) insurance on specific key employees, typically the founders, owners, or important executives—the people who are crucial to the company’s survivability.
Unlike personal life and disability insurance, the business buys a key person policy, pays the premiums and is the beneficiary. If the covered employee dies, the business gets the insurance payoff.
Insurance proceeds can be used in a variety of ways, including paying off debts, offsetting day-to-day operating expenses, supplementing lost revenues until a replacement can be hired, or, in extreme cases, distributing money to investors, paying severance to other employees and closing the business down in an orderly manner.