Key Man Policy

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A Key Man Insurance (also called Key Person Insurance) is a life or disability insurance policy that a business takes out on a crucial employee or executive. If the insured key person dies or becomes disabled, the business receives the insurance payout to help recover from the loss.

Small Businesses & Startups – If a founder, top salesperson, or specialist is critical to operations, losing them could cripple the business.

Large Companies – Corporations often insure top executives, CEOs, and specialized talent whose absence would impact profits or operations.

Businesses Seeking Loans or Investors – Lenders and investors may require key person insurance as financial protection in case a vital individual is lost.

1. The Business Buys the Policy – The company purchases life and/or disability insurance on a key employee.

2. Business Pays the Premiums – The company is both the policy owner and beneficiary.

3. If the Key Person Dies or Becomes Disabled – The insurer pays a death or disability benefit to the company.

4. Business Uses the Payout – The funds can be used to cover lost revenue, hire a replacement, pay off debts, or transition ownership.

For Small Businesses:

✅ Provides financial stability to cover losses, hire replacements, and maintain operations.

✅ Helps secure loans or investment funding by offering financial protection.

✅ Protects against disruptions if a key founder, partner, or specialist is lost.

For Large Businesses:

✅ Offsets revenue loss and costs of finding a replacement.

✅ Ensures business continuity during leadership transitions.

✅ Can fund stock buyouts if a key owner passes away (common in buy-sell agreements).