Key Person Insurance: Protecting Leadership Roles
- Tedford Team
- Nov 7
- 2 min read
Every successful business has individuals whose knowledge, skills, or relationships are vital to its operation and growth. Whether it’s the founder, top salesperson, or a technical expert—losing that person unexpectedly can have serious financial consequences. Key Person Insurance is designed to help protect your business from exactly that kind of loss.
What Is Key Person Insurance?
Key Person Insurance (also known as Key Man Insurance) is a life or disability insurance policy that a business takes out on one or more essential team members. The company is both the policy owner and beneficiary. If the insured individual passes away or becomes disabled, the business receives the insurance payout. This coverage provides a financial safety net to help the business recover, find a replacement, or offset the loss of revenue connected to that individual’s absence.
Why Key Person Coverage Matters
A company’s success often depends on a few people who play critical roles in daily operations and strategy. Without them, the business may experience:
• Lost revenue or client relationships• Delays in projects or product development• Loss of investor or customer confidence• Recruitment and training costs for replacements
Key Person Insurance helps minimize these risks by ensuring that the company has the financial resources to stay stable during the transition period.
Who Qualifies as a “Key Person”?
While this can vary by organization, key persons typically include:• Founders or co-founders who drive business strategy• Top executives such as CEOs, CFOs, or COOs• Lead engineers or technical specialists• Sales leaders responsible for major accounts• Professionals whose expertise or relationships are difficult to replaceIf losing the individual would cause a financial setback, they likely qualify as a “key person.”
How the Coverage Works
1. The business applies for a policy on the key individual.2. The business pays the premiums and is named as the beneficiary.3. If the key person dies or becomes disabled, the insurance pays a lump-sum benefit to the business.4. The funds can be used to cover lost income, hire and train a replacement, or pay off debts until operations stabilize.
Benefits Beyond Protection
Key Person Insurance doesn’t just safeguard against loss—it also enhances the company’s financial credibility.• Investor confidence: Investors and lenders often view coverage as a sign of sound risk management.• Continuity assurance: Helps assure clients and employees that the company can weather unexpected challenges.• Recruitment tool: Demonstrates long-term planning and stability for potential executives or partners.
Choosing the Right Coverage Amount
The ideal coverage depends on your business size, the key person’s contribution, and how long it would take to replace them. A professional insurance broker can help calculate the right amount based on lost profits, hiring costs, and potential business impact.
Protect What Matters Most
Key Person Insurance is not just about protecting an individual—it’s about protecting the business they help lead. When leadership transitions happen unexpectedly, having a plan in place can make the difference between disruption and recovery.
Product descriptions provide a summary of coverage and are provided as a reference only. The actual policy determines coverage. The policy contains exclusions, limitations and other provisions not referenced (or only briefly summarized) here and the policy should be consulted for full coverage terms, conditions, and requirements.