What type of insurance protects a business when a key employee’s death disrupts operations?

Key person insurance protects a business financially when the death or serious incapacity of a crucial employee disrupts operations.

The business usually owns the policy, pays the premiums, and is the beneficiary. The insured person may be an owner, executive, founder, salesperson, or specialist whose knowledge, relationships, or leadership is difficult to replace. A payout can help cover recruitment, temporary disruption, lost revenue, debt, or a change in ownership.

The coverage is not the same as ordinary life insurance purchased by an individual for family protection. It is designed around the economic value of a person to an organization, and the company generally needs a legitimate financial interest and the person’s consent.

A related policy can fund a buy-sell agreement, but key person insurance primarily protects the business itself from operational and financial shock.