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Why A Growing Business Needs To Look Into Key Person Insurance


In a small, thriving business, the death of a key employee could cause the business to collapse. It could be an owner, a founder, a key salesperson, or any other important player. Life is full of uncertainties, but key person insurance helps protect your business should the unexpected happen.

How Key Person Insurance Works

Key person insurance is life insurance on a key person in the business. The business pays the premiums and the business–not the deceased person’s family–is the beneficiary under the policy. If the insured key person dies unexpectedly, the business receives the payoff. The purpose of this coverage is to help the business survive the loss of a key person who is critical to the success of the enterprise.

Key person insurance can help a growing business avoid bankruptcy should a tragedy occur. The company can use the proceeds from the insurance policy to:

  • Cover expenses until a replacement can be found for the deceased key person
  • Help the business get back up to speed

Or, if necessary, it can be used to:

  • Pay off company debts
  • Distribute funds to investors
  • Pay severance to employees
  • Close the business down in an orderly manner

Does Your Business Need Key Person Insurance?

Most large businesses have a number of experienced executives and employees who can take up the slack when a key person is lost to unexpected death. On the other hand, most small to medium growing businesses rely on a few key individuals to make things work. In many small businesses, the founder is an irreplaceable key person who holds it all together, and without whom business would come to a stop.

To determine if you need key person insurance, take a good look at your business. Does it have certain irreplaceable key people whose contributions are crucial to its success? Without those key people, would the business likely collapse? If so, it would be wise to consider purchasing key person insurance.

How Much Key Person Coverage Does Your Business Need?

The amount of key person insurance to purchase for your business will be determined by balancing the financial needs of your company against the amount of the premiums. As with any other life insurance policy, the greater the face amount, the higher the premiums. Term policies typically have lower premiums than whole or variable life insurance policies.

To gauge the amount of key person insurance to purchase, consider how much it would take for the business to survive until the key person could be replaced and get back on its feet. As a general guideline, buy as much key person insurance as your business can afford.

Shop Around for Key Person Insurance

It pays to shop around for a key person insurance policy. Compare quotes on different policies ranging from $100,000 to $1 million. Our knowledgeable agency can help you find a key person insurance policy that will fit your budget and address the short-term cash needs of your business should the unexpected death of a key person occur.

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