Key person insurance is leveraging a life insurance policy taken out and owned by a company on a key employee, such as the CEO. It is like a protective shield for your business, ensuring it stays financially resilient and safeguarding against potential setbacks in the unfortunate event of their death.

Illustrating Key Person Insurance: A company’s story

Alpha, a luxury furniture company is led by Sandra. As the CEO, she is the creative force behind the brand and her decisions drive the company’s success. As Sandra is a key employee, the company purchases and owns a life insurance policy on her. If Sandra dies suddenly, the company, being the policyholder, will receive a payout that can be used to hire an interim creative director, maintain business reputation and operations, or even buy back Sandra’s share of the business.

Other areas of assurance

Customer Assurance

In the absence of a key figure, your customers may feel uncertain. Having a life insurance policy on your key employee ensures that in the unfortunate event of his or her death, your business will have the funds to continue delivering quality service, hence providing assurance to customers, and maintaining their trust.

Loan Repayment

If the company has outstanding loans, the insurance payout can be used to repay debts, preventing financial strain during a leadership transition.

Recruitment Costs

The funds from the insurance payout can cover recruitment costs for finding and onboarding a suitable replacement, ensuring a smooth transition and minimal disruption.

Financial Stability

Getting a life insurance policy on your key employee can assure your stakeholders that the business has a financial safety net upon his or her death.