The Hidden Risk in Your Business: Why Key Person Insurance Matters
As a business owner, you already know about insuring your equipment, property, or vehicles. But what about your most valuable asset, the people who keep your business alive?
In this post, we uncover the hidden risk most business owners overlook: the loss of a key person. We also explain how Key Person Insurance can help you protect, preserve, and prepare for the unexpected.
What Happens if a Key Person Dies?
If a vital member of your business were to suddenly pass away, the impact could be devastating:
Loss of revenue
Broken client relationships
Delayed or missed projects
Declining morale
Time and cost to find a replacement
Possible disruption with banks, lenders, or investors
For many small businesses, the key person might be you as the owner. In larger businesses, it could be a top sales producer, CFO, or someone with specialized technical knowledge.
Who Qualifies as a Key Person?
A key person is anyone your business cannot afford to lose. This may include:
Founders or co-founders
Top salespeople
Specialized technical talent such as engineers or developers
Executives such as CFOs and COOs
Individuals who manage investor or vendor relationships
If their absence would cause a serious setback, they are a key person.
What Is Key Person Life Insurance?
Key Person Insurance is essentially a safety net for your business.
The business owns the policy and pays the premiums.
The insured person is the key employee or owner.
If that person dies, the business receives an income tax-free death benefit.
This lump sum can be used to:
Cover lost revenue
Pay ongoing expenses
Recruit and train a replacement
Keep the business afloat during transition
Real-World Examples
Here is where Key Person Insurance makes all the difference:
A sales director generating 65 percent of revenue. Losing them would cripple the business overnight.
A CTO with proprietary system knowledge. If their knowledge disappears, operations stall.
An owner with personally guaranteed loans. Without protection, lenders could come after the business.
A COO who manages all vendor relationships. Losing that trust and access can disrupt the entire supply chain.
Why Cash Value Life Insurance Works Best
While term insurance can be used, many businesses choose whole life or cash value policies because of the added benefits:
Bridge capital during transitions
Access to cash value for emergencies or business opportunities
Tax-advantaged growth with guarantees and dividends
Executive bonus or retirement plans funded through policy cash value
Collateral for loans to expand or purchase equipment
This flexibility allows the policy to protect your business in more ways than one.
Structuring Key Person Coverage
There is no one-size-fits-all solution, but here are some guidelines:
Use permanent life insurance for long-term value.
Consider convertible term if budget is tight.
Align coverage with revenue impact or replacement cost.
The business is always the owner and beneficiary, while the key person is the insured.
Final Thought
You insure your trucks, tools, and property. Why not insure your most valuable asset, the people who keep your business alive?
Key Person Insurance ensures that if tragedy strikes, your business has the resources to survive, adapt, and keep moving forward.
Protect Your Business Today
If you want to identify hidden risks in your business and see how Key Person Insurance might protect you, schedule a complimentary discovery call today.
