What is key person insurance?

When running a business, it’s important to consider the financial burden that could occur if the company loses a critical employee or partner. Key person insurance can help ease this hardship by covering costs such as loss of business income, training new employees, etc. This video outlines the basics of what this type of insurance typically covers so that you can get an idea of how it can help your business.

Video transcript

As a business owner, it’s important to be aware of the people in your organization that are vital to the success of the business. This could include your CEO, a founder or an employee who leads the most profitable division of your business.

This person would be considered a key person. You can purchase insurance on this individual to ease the financial burden in the event of them passing or being unable to work due to an injury or illness. This is called “key person insurance.”

Here are some of the reasons a company invests in key person insurance:

To recruit, hire and train a replacement
To secure or pay off a business loan
To keep financial stability during the transition
To instill investor confidence by showing them you have a contingency plan
To offer financial assistance to the family

There are a few types of key person insurance, including life insurance, disability insurance and critical illness insurance. Each business is unique, and which type you choose will differ based on the company’s needs.

It’s important to talk to your advisor to decide what type of insurance will leave you and your business feeling the most comfortable.