Your business is probably like most: one or two of your employees are vital to the survival of the organization. In fact, these individuals may be critical to your overall success and profitability. Consider purchasing key person life insurance to reduce the backlash in the event that one of these key employees leaves you prematurely.

Key Person Life Considerations

Would losing one of your employees have one or more of the following effects?

• Reduce your earning capabilities
• Create a loss of a specialized skill
• Disrupt everyday business operations
• Create customer concern due to a loss of expertise
• Impact a special project or sales campaign in a negative way
• Jeopardize your financial security

If so, then you need key person life insurance!


Key Person Life Insurance for Your Business

As a small business owner, you may employ at least one individual who is essential to your company’s success. This person may be a partner, or have a unique expertise that is unmatched throughout the rest of the company. If this person’s exit from the company is planned, such as retirement or voluntary termination, then you can prepare for the loss and take the necessary precautions to minimize the impact. However, if the departure is unplanned due to an unexpected death, then the company is exposed to financial risks. In some instances cash value could be used to help the company get by when an employee unexpectedly quits as well.

If you employ individuals who are vital to your company’s success, especially if your business is small, consider key person life insurance. This insurance solution can protect your organization’s solvency in the event that you lose the key person without warning, and also the investments made by lenders and investors to your company.


Advantages of Key Person Life Insurance

The following are just a few of the advantages of key person life insurance:

• It can be easily implemented and does not require Internal Revenue Service (IRS) approval; only requires an annual report to the IRS.
• Life insurance benefits are paid to the company tax-free.
• Customers, creditors, lenders and stockholders have the assurance that the business has a continuation plan and coverage in place.
• There is flexibility in what the funds can be used for.


How Does Key Person Life Insurance Protect My Company?

• You purchase life insurance on the key individual(s).
• You are the beneficiary of the life insurance policy, and apply for and own the policy. If the key employee dies prematurely, the policy pays out to you.
• Tax-free dollars from the policy can be put towards finding, hiring and training a replacement employee, compensation for lost business during the transition and/or financing timely business transactions.
• Policy can be transferred to a departing key employee as a retirement benefit or to a different key individual, upon the retirement of the original key employee.
• Can be used to buy out the key employee’s shares or interest in the company.
• Premiums are based on several factors, including the key employee’s age, physical conditions and health history. The amount of coverage also affects the premium.


Case Study - Why You May Need Key Person Life

Jeff Moses, president of Auto Custom Carpets, was on his way home from a business trip in Ohio when tragedy struck. The small airplane he was riding in lost control and crashed into a creek near Talladega, Ala. The plane exploded upon impact, killing everyone on board.

Jeff Moses’ death left a huge void in the company’s leadership team. Not only was Moses the president and co-owner of Auto Custom Carpets, he was also a charismatic sales leader whose product knowledge and extensive industry experience were integral to the company’s success. Without Moses leading the way, the company could expect an immediate and precipitous drop in sales revenue.

The future of Auto Custom Carpets—and its 150 employees—hinged on the ability of the two remaining partners to quickly find and recruit a qualified replacement before the company’s working capital dried up.


Key-person life insurance policy enabled Auto Custom Carpets to remain solvent in the midst of tragedy.

Thankfully, the executive team had the foresight to purchase a key-person life insurance policy for each of the three partners. Key-person life insurance is simply life insurance on a critically important employee in a business. The business owns the policy, pays the premiums and is named the beneficiary. In the event of the death or other departure of the key employee, the business receives the insurance payout, allowing it to remain solvent during a time of uncertainty. The money can be used to make up for lost sales revenue, fund a buy-sell agreement or cover the cost of finding and training a replacement.

The infusion of capital from the key-person life policy enabled Auto Custom Carpets to sign an experienced sales professional away from one of their competitors, and less than 30 days after the tragic crash, the company was back up and running at full speed.


Is your business similarly prepared to survive the loss of a key employee? Not sure? Contact WD & Associates at to discuss whether key-person life insurance is the right fit for you. You can also save the information in this blog by downloading the PDFs here and here. 

Contact Us

DOWNLOAD your free employee guide to fmail medical leave act (FMLA).

Our Employee Guide to FMLA is yours free now, just click to download. It has a wealth of information that you can use now!

     Download Your FMLA Guide Here

Leave a comment

Posts by Topic

see all

Recent Articles

Popular Articles