Key Man Insurance

Key person insurance (AKA key man insurance, key employee insurance) is a business policy taken out by a business as the “owner” of the policy that covers a Key Person/Business Partner.  The company purchases this insurance policy on the key employee, pays the premiums and the business is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff. The reason this coverage is important is because the death of a key person in a small company often causes the immediate death of that company. The purpose of key man insurance is to help the company survive the blow of losing the person who makes the business work. The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key man insurance gives the company some options other than immediate bankruptcy.