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👤 '''Key person insurance''' is a [[Definition:Life insurance | life insurance]] or [[Definition:Disability insurance | disability insurance]] [[Definition:Insurance policy | policy]] purchased by a business on the life or health of an individual whose skills, knowledge, relationships, or leadership are critical to the company's financial performance. The business is both the [[Definition:Policyholder | policyholder]] and the [[Definition:Beneficiary | beneficiary]], meaning that if the insured individual dies or becomes disabled, the [[Definition:Death benefit | death benefit]] or disability payout goes directly to the company rather than to the individual's family. In the insurance industry, key person coverage sits at the intersection of [[Definition:Commercial insurance | commercial insurance]] and life insurance, and it is a significant product category for [[Definition:Insurance agent | agents]] and [[Definition:Insurance broker | brokers]] serving small and mid-sized businesses.

🔧 Securing a key person policy begins with demonstrating [[Definition:Insurable interest | insurable interest]] — the business must show that the loss of the individual would cause a measurable financial impact. [[Definition:Underwriting | Underwriters]] evaluate the individual's role, the company's revenue dependency, and the estimated cost of recruiting or training a replacement. The [[Definition:Face amount | face amount]] is typically calculated based on a multiple of the person's compensation, the company's projected revenue loss, or the cost to service debt obligations that the key person helped secure. [[Definition:Premium | Premiums]] are paid by the business and, depending on the jurisdiction and policy structure, may or may not be tax-deductible — a nuance that [[Definition:Insurance advisor | advisors]] must navigate carefully. [[Definition:Term life insurance | Term life]] policies are common for key person purposes because of their lower cost, though some businesses opt for [[Definition:Whole life insurance | whole life]] or [[Definition:Universal life insurance | universal life]] to build [[Definition:Cash value | cash value]] alongside the protection.

💼 For carriers, key person insurance represents a profitable niche with relatively straightforward [[Definition:Claims management | claims]] dynamics, but it also requires producers with strong commercial acumen who can quantify the economic value of an individual to an organization. The product plays a vital role in business continuity planning: lenders often require key person coverage before extending credit, and [[Definition:Private equity | private equity]] investors may mandate it as a condition of investment. [[Definition:Insurtech | Insurtech]] platforms have begun streamlining the application and underwriting process for smaller policies, using digital financial analysis tools and accelerated [[Definition:Medical underwriting | medical underwriting]] to reduce the friction that historically deterred smaller firms from securing this coverage.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Life insurance]]
* [[Definition:Insurable interest]]
* [[Definition:Business continuity planning]]
* [[Definition:Buy-sell agreement insurance]]
* [[Definition:Term life insurance]]
* [[Definition:Disability insurance]]
{{Div col end}}

Definition:Key person insurance - Revision history

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