Financial Planning

Key Man Life Insurance

Life insurance on a key employee, partner, or proprietor on whom the continued successful operation of a business depends. The business is the beneficiary under the policy.

In a small business, this is usually the owner, the founders, or perhaps a key employee or two. These are the people critical to the business –the ones whose absence would sink the company.

A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary. If that person unexpectedly dies, the company receives the insurance payoff.

The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business in an orderly manner.

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