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🔑 '''Key person life insurance''' is a [[Definition:Life insurance | life insurance]] policy taken out by a business on the life of an individual whose skills, knowledge, relationships, or leadership are considered critical to the company's financial well-being. The business itself is both the [[Definition:Policyholder | policyholder]] and the [[Definition:Beneficiary | beneficiary]], meaning the [[Definition:Death benefit | death benefit]] is paid directly to the company — not to the insured individual's family — in the event of that person's death. While the concept applies across industries, it occupies a distinct role within the insurance sector itself: [[Definition:Insurance carrier | carriers]], [[Definition:Managing general agent (MGA) | MGAs]], and [[Definition:Insurance broker | brokerages]] frequently purchase key person coverage on star underwriters, senior actuaries, or revenue-generating producers whose departure could materially impair the firm's [[Definition:Book of business | book of business]] or capacity to operate.

📋 Structurally, the policy is typically a [[Definition:Term life insurance | term life insurance]] contract — sometimes a [[Definition:Level term life insurance | level term]] — with a face amount calibrated to the estimated financial impact of the key individual's loss. Quantifying that impact involves analyzing projected revenue contributions, the cost of recruiting and training a replacement, potential disruption to client relationships, and, in some cases, the effect on outstanding loan covenants or [[Definition:Private equity | investor]] commitments. [[Definition:Underwriting | Underwriting]] follows standard individual life procedures: the insured completes a health questionnaire, may undergo a medical examination, and the insurer evaluates mortality risk in the usual fashion. Premiums are paid by the business, and in many jurisdictions — including the United States and the United Kingdom — they are not tax-deductible, though the proceeds received upon a claim are generally tax-free (subject to specific rules and limits that vary by country). Some businesses supplement the mortality component with a [[Definition:Critical illness insurance | critical illness]] rider, recognizing that a key person's prolonged disability can be just as damaging as death.

💼 Lenders, [[Definition:Venture capital | venture capital]] firms, and [[Definition:Private equity | private-equity]] investors routinely require key person coverage as a condition of financing, particularly for smaller enterprises whose value is concentrated in a handful of individuals. In the insurance and [[Definition:Insurtech | insurtech]] space, early-stage companies built around a visionary founder or a team with scarce technical expertise face the same exposure. Beyond pure financial indemnity, the existence of a key person policy signals disciplined risk management to external stakeholders and can facilitate smoother [[Definition:Business continuity | business-continuity]] planning. The product is also relevant in [[Definition:Buy-sell agreement | buy-sell agreements]] among business partners: upon a partner's death, the insurance proceeds fund the surviving owners' purchase of the deceased partner's equity stake, preventing forced liquidation or unwanted third-party ownership — a mechanism particularly common in professional services firms and agency partnerships.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Term life insurance]]
* [[Definition:Buy-sell agreement]]
* [[Definition:Critical illness insurance]]
* [[Definition:Business continuity]]
* [[Definition:Corporate-owned life insurance (COLI)]]
* [[Definition:Death benefit]]
{{Div col end}}

Definition:Key person life insurance - Revision history

PlumBot: Bot: Creating new article from JSON