Your business runs on a few essential people, and it carries debt, partners, and payroll that all depend on them. Protect the company if an owner or key employee dies, fund a clean partner buyout, satisfy your lender, and keep the people who make you money. Built with you and your CPA or attorney.
If the business would stumble when one person is gone, that person is a key person.
Key person insurance, also called key man insurance, keyman insurance, key people insurance, or key employee insurance, is a policy the business owns on an owner or an essential employee. The company pays the premium and is the beneficiary. If that person dies, the death benefit goes straight to the business so it can absorb the lost revenue, recruit and train a replacement, reassure lenders and clients, and keep payroll moving while it steadies itself. It buys the company the one thing it cannot manufacture in a crisis, which is time.
A buy-sell agreement is the contract that decides what happens to an owner's share if that owner dies, becomes disabled, or exits. Life insurance is what makes it work. When an owner dies, the policy pays cash so the surviving owners or the business can buy out the deceased owner's share at a value you agreed on in advance. Without it, you risk being in business with a grieving spouse who needs cash, not a partnership, while you scramble to find the money. Funding it with life insurance turns a worst case into a written plan. The structure varies by company type and goal, so we design it together with your CPA or attorney. You can review how the U.S. Small Business Administration frames planning for business continuity.
Lenders know a small business often lives or dies with one or two people, so many require life insurance on the owners or guarantors as a condition of the loan. SBA 7(a) loans frequently call for it. The policy is collateral-assigned to the lender, which means if the borrower dies, the loan is paid off first and any remainder goes to the family. That clears the debt the family personally guaranteed, keeps the business solvent, and gets the loan approved. We size and structure the policy to match exactly what your loan documents require, no more and no less.
An executive bonus plan, often called a Section 162 plan, is a simple way to reward and retain a key employee. The employee owns a permanent life insurance policy, and the business pays the premium as a bonus to that employee. The employee walks away with valuable coverage and the cash value the policy builds over time, which is a powerful reason to stay and grow with you. It is straightforward to set up and easy for the employee to understand. Because the tax treatment depends on how it is structured, we design it with your CPA or attorney so it does what you intend.
Usually less than owners expect. For a healthy key person, a term policy often runs from around twenty dollars a month into the low hundreds, driven by their age and health, the amount of coverage, and the term length. Permanent coverage costs more but builds cash value the business can use later. The honest way to size the premium is to start from the financial hole that person's loss would leave, then price the policy that fills it. We break the real numbers down, with sample figures, in our guide on how much key man insurance costs.
If the sudden loss of one owner or one irreplaceable employee would stall your revenue, worry your lender, or leave your partners buying out a grieving family with money they do not have, the answer is usually yes. If the business would keep running without missing a beat, it may not be a priority yet. The test is simple: name the one person the company could not easily replace, then picture next quarter without them. We walk through it in life insurance for business owners.
Figures are illustrative, not quotes, and vary by age, health, carrier, and state. Coverage is subject to underwriting. This is general education, not tax or legal advice; we structure the ownership and beneficiary with your CPA or attorney.
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Key person insurance is a life insurance policy a business buys on an owner or an essential employee. The business owns the policy, pays the premium, and is the beneficiary. If that person dies, the death benefit goes to the company so it can cover lost revenue, recruit and train a replacement, reassure lenders and clients, and keep the doors open while it recovers.
For a healthy key person, key man insurance often costs from around twenty dollars a month into the low hundreds for term coverage, depending on the person's age and health, the amount of coverage, and the length of the term. Permanent coverage costs more but builds cash value the business can use later. The honest way to size it is to start from the financial loss the person's death would cause, then price the policy that covers it. See our full breakdown with sample figures in how much key man insurance costs.
You likely need it if the sudden loss of one owner or one essential employee would stall your revenue, trigger a loan requirement, or force your partners to buy out a family member's share. If the business would run smoothly without that person, it may not be urgent yet. A simple test: name the one person the company could not easily replace, and picture the next quarter without them. Our guide on life insurance for business owners walks through it.
A buy-sell agreement is a contract between business owners that sets out what happens to a share of the company if an owner dies, becomes disabled, or leaves. Life insurance funds it: when an owner dies, the policy pays cash so the surviving owners or the business can buy out the deceased owner's share at an agreed value, instead of ending up in business with the family of the deceased. The structure varies, so we design it alongside your CPA or attorney.
Often yes. Many lenders, and SBA 7(a) loans in particular, require life insurance on the owners or guarantors as a condition of the loan, especially when the business depends heavily on one or two people. The policy is collateral-assigned to the lender so the loan is paid off if the borrower dies, which protects the lender, the business, and the owner's family.
An executive bonus plan, sometimes called a Section 162 plan, is a way for a business to reward and keep a key employee. The employee owns a permanent life insurance policy and the business pays the premium as a bonus. The employee gets the coverage and the cash value the policy builds, which gives a strong reason to stay. The exact tax treatment varies, so we design it with your CPA or attorney.
It depends on the goal. For key person and buy-sell coverage the business or the other owners usually own the policy and receive the benefit. For a loan, the lender is collateral-assigned. For an executive bonus, the employee owns the policy. We map out ownership and beneficiary structure with your CPA or attorney so it matches your intent.
Getting a key person insurance quote is simple. We start with a short call about the owner or key employee, the business structure, and what you are protecting, then I shop A-rated carriers for the right key man insurance quote. There is no obligation, and most quotes take only minutes. Request a key person insurance quote from a licensed agent and you will usually have real numbers the same day.
Yes. Key person insurance can be written as term life or permanent life. Many businesses use key person term life insurance to cover a loan or a defined period at a low cost, while others choose permanent coverage when they also want cash value for an executive bonus or a future buyout. We match the type of policy to the goal and the budget.
Key employee insurance, sometimes called key people insurance, is the same idea as key person or key man insurance applied to the staff a company cannot afford to lose. The business insures a top salesperson, a lead engineer, or anyone whose absence would stall revenue, so the company has cash to recruit, train, and recover if that person dies.
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