Key Employee Life Insurance Explained

Why is it so important for small businesses to own key person (or key employee) life insurance on their top employees? The answer is simple: most small companies depend exclusively upon one or two very talented people to make the business run successfully. Therefore, it only makes logical sense if your company is in this position to protect against the threat of the sudden death of one of your most valuable employees. Following is a thorough overview of key employee insurance and how it can help protect your business.

Definition of Key Employee Insurance

Take a moment and think about how the loss of your top salesperson may impact your company. Key employee life insurance is a form of life insurance that can protect your business in the case of an untimely death of a chief executive, marketing guru or business owner. If your company owns key man life insurance, the business can continue operations without major disruption in the event of the loss of a key employee. In many cases, a key employee life insurance policy can be the difference between a company’s ongoing operations and its ultimate demise.

How is Key Employee Insurance Structured?

When buying a key employee life insurance policy, the company (your business) actually applies for the policy on the life of the key person for the benefit of the business in the unfortunate event the key person dies. In most every case, the company is the policy owner, pays the premiums and is the beneficiary of the policy proceeds. The employee is the insured (covered individual) and at his/her death, the family will NOT receive benefits from the key employee proceeds.

To reiterate, key employee life insurance policies are established by the business to protect the business NOT the key person. If a key employee dies, the policy proceeds can be used by the company for any purpose. Normally, businesses will use the proceeds received from a key person life policy to cover the expenses associated with finding a qualified replacement or to meet short-term obligations until a capable replacement can be found.

How Much Will It Cost to Buy Key Man Life Insurance?

Many key employee life insurance policies are simply term life insurance policies that are owned by a business. Term Life is the most inexpensive form of life insurance which makes most key person life policies very reasonable and affordable. As with any life insurance contract, the age and health of the key employee will ultimately determine the actual policy cost. Our recommendation is get a free key employee life insurance quote right from this website. After reviewing your options, you will likely realize that the cost of protecting your business with key employee life insurance is a “drop in the bucket” compared to what would happen to your company if a key employee died without the coverage in effect.

Term life is not the kind of life insurance that can be used for key employee life policies. Whole life, universal life and equity indexed universal life are all available and can be the way t go if your business needs more permanent insurance. An example of this scenario would be a business owner that wants to protect his FAMILY at his death can purchase a lifetime guaranteed universal life policy so that his remaining business partners can buy-out his family. In this case, the family gets the business equity it is entitled to and the remaining owners keep the business sin tact without involvement with the deceased partner’s family.

Applying for Key Person Life Insurance Is Easy

As mentioned above, term insurance is the most commonly used type of life insurance for key employee life policies. So the process of buying a key employee policy is very similar to applying for an ordinary term life policy. Requirements include an application for life insurance and an insurance exam. A detailed outline of the steps required to get a key employee life policy can be found here.


Key employee life insurance can be a critical risk management strategy if your business relies on one or two key people for the majority of it revenue. Key man coverage is very similar to ordinary life insurance. The main difference is that proceeds of the key person policy are payable to the company rather than the insured’s family. With key employee protection, the business owns the policy, pays the premiums and is the beneficiary of the policy and proceeds can be used at the discretion of the company.

Key person life is really inexpensive when compared to the financial devastation of the loss of one of you top performers. In most cases, as long as you are working with an experienced independent agent, the process of buying a key employee policy is not difficult and a policy can usually be obtained within a few weeks. For any questions regarding key employee insurance, CALL NOW at toll free (877) 583-3955.

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