What Is Key Person Life Insurance?

  1. 63333 POINTS
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    Peggy MacePRO
    Most of the U.S.
    Key person life insurance covers employees who are big contributors to the income that companies bring in (e.g. top salesmen, designers, engineers), are managers, or are other key employees. This type of worker can be hard to replace, and the time it takes to replace them can result in losses to the company. Therefore, key person life insurance can help alleviate those losses and give the company some finances to help them recruit a replacement.
    Answered on March 27, 2014
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    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    Key man insurance is a form of business insurance.  The key person is generally responsible for the profits of the company.  If that person were to suddenly die, the company might find it difficult to replace them.  The death could cause a sag in profits.  Creditors might take a different look at the company if the key man is dead.  The business will need cash to survive.
    Answered on March 27, 2014
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    Jim Winkler
    CEO/Owner, Winkler Financial Group, Houston, Texas
    That is a great question! If you are an invaluable part of your companies success, I'd not be surprised to hear that they have a key person policy on you! This type of policy is purchased by an employer, or business partner when the loss of that employee would have a great impact on the financial stability of the company. For example, let's say that you are a mechanic that specializes in repairing imported sportscars, you are really good at it and have developed quite a lot of clients that come to you, and your company relies heavily on that income you generate. They may take out a policy for the event that you pass, and the business suffers financially from the loss of your clientele until they find a replacement for you. The company is the owner, the beneficiary, and pays the premiums in this type of policy. I hope that helps, thanks for asking!
    Answered on July 3, 2014
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