Protecting Your Business from the Loss of a Key Person

While no one is truly irreplaceable, some individuals are vital to the health and direction of a business. The sudden loss of a key contributor—whether due to death or disability—can create serious disruption, both emotionally and financially. For many businesses, protecting against that risk with key person insurance can be a smart and strategic move.

Defining a "Key Person"

There’s no legal standard for who qualifies as a key person, but in practice, it's anyone whose absence would materially affect the business. This could be a founder, a top-producing salesperson, a leader with specialized expertise, or someone who plays a crucial role in investor relations or strategic growth. If their departure would significantly impact revenue, operations, or access to capital, they’re likely a key person.

How Key Person Insurance Works

Key person insurance is a life or disability policy purchased by the business on the life of the individual. The company pays the premiums and is the beneficiary of the policy. If the insured person passes away or becomes disabled, the business receives the proceeds to help offset the financial impact.

These funds can be used in a variety of ways: to cover operating expenses, repay business loans, reassure stakeholders, or recruit and train a successor. While the premiums are generally not tax-deductible, the benefits can provide much-needed stability during a difficult transition.

Estimating Coverage Needs

Determining the right amount of coverage begins with evaluating the potential financial loss to the business. How long would it take to recover lost revenue? What would it cost to replace that person or temporarily fill the gap? Once you’ve assessed the potential exposure, the next step is obtaining quotes to understand the cost of insuring that risk.

Ultimately, the right coverage balances affordability with the potential financial consequences of an unexpected loss. It’s about giving your business the resilience to navigate a worst-case scenario without losing momentum.

A Smart Risk Management Strategy

Business owners routinely insure property, vehicles, and inventory—yet the human capital that drives growth is often left unprotected. Key person insurance is one way to recognize the value of your most essential people and ensure your business is prepared for the unexpected.