Business Owners Suite · Key Person
Business Preservation
Most companies have a person whose skills are vital to the success of the business. A key person may be an owner, a partner, or an employee the company could not lose without serious consequences. The employer purchases a policy on that person and is the owner, the premium payor, and the beneficiary of it.
The Structure
What it does
The death benefit is paid to the business, not to a family. It covers the cost of finding and hiring a replacement, steadies a credit line that was extended partly on that person's reputation, and funds the months where revenue dips while the company reorganizes.
Who qualifies
The test is not seniority. It is what happens to revenue, credit, and staff confidence if that person is gone on Monday. Sometimes it is the founder. Often it is the one salesperson who holds half the accounts, or the operations lead nobody has cross-trained.
How it is sized
Common approaches value a key person by a multiple of compensation, by the contribution to profit, or by the actual cost to replace the role. Whichever method is used, it should be written down, because an arbitrary face amount is difficult to justify later.
Every business will face this eventually, through a death, a disability, or a key employee simply deciding to leave. The only variable is whether the company has prepared for it.
Begin the Conversation
Thirty minutes, no presentation, no obligation. Bring the agreement if you have one. If you do not have one, that is a useful place to start.
Important: This page is general education. It is not legal, tax, accounting, or individualized financial advice. Buy-sell agreements, split dollar arrangements, deferred compensation plans, and trusts should be drafted by a qualified attorney, with tax treatment confirmed by a qualified tax professional. Life insurance policies contain costs, charges, limitations, exclusions, and conditions; coverage depends on underwriting and on the terms of the policy issued. Guarantees are backed by the claims-paying ability of the issuing insurance company. Video content is produced by the issuing carrier and is presented with attribution.