Key Person Insurance

Life or disability insurance a company buys on a critical employee, paying the business at loss.

Overview

The company owns the policy, pays premiums that are typically not deductible, and receives death benefits that are generally income tax free, though corporate alternative minimum tax can complicate some life proceeds. Coverage quantifies the contribution of founders, rainmakers, and specialists whose exit would strain revenue and continuity, and lenders frequently require it on founder led loans. Amounts follow rules of thumb such as multiples of compensation or share of profits. Beyond cash, the policy reassures investors and creditors that the plan survives the person. Buy sell agreements are a related structure where policies fund the purchase of a deceased owner share from the family.