Best Life Quote

Key Man Life Insurance

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

Table of Contents

As an entrepreneur, your business has a critical role in the economy’s growth. Your creative thinking and innovation is evident in the products, services, and the jobs you create. However, the company you worked so hard to build can vanish at a moment’s notice if you’re not properly insured.

Your business is your livelihood. There are a countless number of things that could happen that could sink your business and destroy everything that you’ve worked so hard for. If you don’t have the proper insurance policy, you could be left with nothing but a massive amount of debt.

Key Man Life Insurance and Your Business

No matter what amount of life insurance you are looking for, we can help.

If your input is crucial to your company’s survival, then you must have key man insurance as a part of your succession planning.  Especially if you’re an up and coming business.

Key man insurance protects your company’s bottom line in the short and long-term. The benefits paid out from the life or disability benefits would:

  • Recruit and train a successor
  • Repay your creditors
  • Pacify lenders and convince them of your company’s financial health
  • Assure employees, investors, and customers of the company’s survival.

Key man insurance is critical if your family relies on the business as their main source of income. It will ensure the business continues to provide for your family’s financial needs.

What Is Key Man Insurance?

First things first: Key man insurance is not a standalone product. Insurers frame the policy around traditional life insurance or living benefit (cash value) life insurance.

In many cases, life insurance varieties outsell disability insurance. This is simply because issuers are reluctant to insure the large amounts needed to sustain a company if the key person is disabled.

Most buy-sell insurance policies include a key person component, so that’s something you could take into consideration.

business man talking on the phone in a warehouse about key man life insurance

There is a lot of confusion around key man insurance policies, but it’s vital that you understand the coverage that you need and how to get it. Basically, key man insurance is essentially a traditional life insurance plan, but the beneficiary of the policy is the company itself and the company pays the premiums.

Would your business be able to stay afloat, and solvent, if you weren’t there? Even if it could, would it be such a big burden on the other members within the business it would bring the business down?

If you answered yes to either of these, you should at least explore the financial security of a key man insurance policy.

Types Of Key Man Insurance

If you want key man insurance, you’ll have to make a decision about which kind of life insurance plan you want to buy. Each life insurance company has its own spin, but here are some basic types of key man insurance.

Key Man Term Life Insurance

Term life insurance is the most popular option because the premiums are fairly inexpensive when compared to the alternatives. Your premiums are not tax deductible, but the benefits are tax-free, based on specific conditions. You can purchase term life policies for 1-30 years. And the premiums will remain the same for the life of the policy.

Key Man Whole and Universal Life Insurance

If you run a thriving business, you might choose to invest in the higher premiums available. Look into whole or universal life insurance for key man policies. Whole life policies build cash value over time. You can use this to recoup some of the policy’s premiums when you retire.

You can keep the policy going long after you retire.  However, it will cost 5-10 times that of term life. So it’s unlikely that you’ll want to keep the policy going that long.

Key Man Survivorship Life Insurance

If you’re in a partnership, you might want to consider survivorship life insurance. The policy insures both you and your associate and pays the benefits to the surviving partner. Survivorship life insurance is cheaper than purchasing separate term life policies.

If you outlive your partner, you can use the benefits to pay the deceased person’s heirs who may have some claim to the business.

What Type Of Businesses Need Key Man Insurance?

Key man insurance benefits small and medium-sized businesses. But larger corporations have been known to purchase key man to insure a top executive.

If you’re in a partnership, key man insurance will let you buy out your partner’s share of the business from his/her family. Your goal as a business owner is to ensure the survival of your business, whether you’re there or not.

The health of your company may be intertwined with your persona. If so, it’s crucial that you provide for your business when you’re not around.

How Much Key Man Insurance Do You Need?

The size of the coverage depends on the amount of revenue you generate for the business, your yearly compensation, and the cost to recruit and train someone to take your place. Continuity planning dictates that you purchase sufficient coverage to protect the contributions your successor makes.

Getting an adequate sized insurance plan is going to be a long and involved process. Because there are so many aspects that you’ll need to account for when you want to protect your organization.

The biggest factor that you should consider is how much financially suffering that your business would experience should pass away unexpectedly.

Now, if you’re one of the essential components in the organization, your business would be crippled if something tragic were to happen, which means that you should have the key man insurance protection that they need to replace you inside of the business.

Earlier we mentioned some of the expenses that your business would encounter if something happened to you.

Before you apply for one of these plans, add up all of the possible expenses. While you may know that you need protection, it’s vital that you get the correct amount of insurance for your business.

Add up the cost of training a new person or outsourcing any of the tasks. In most cases, an insurance professional is going to suggest that you get as much key man life insurance that you can afford. It’s better to be safe than sorry when dealing with your business.

Affordable Key Man Insurance

The responsibility is on you to make sure your business (and the livelihood it provides) is sustained in all possible situations. Especially in the case where you have dependents, personally, or employees who are dependent on you, it’s the right thing to do.

But just going and getting any old type of policy doesn’t mean it’s handled. Do the due diligence required of you now, so you won’t ever have to worry about contingent situations down the road.

Spend some time seeking out advice from your peers, legal team, accountant, or whoever you need in order to feel well-equipped before buying. Even then, take your time through the process, use a reputable company and agent, and maximize the money you’re spending.

As with anything in business, do it right the first time, and you’ll never need to deal with it again.

Comparison shopping for term life insurance with a key life component will ensure you get the best value for your money.

As an independent life insurance agency agent, we can help by providing sound advice to help you find quality coverage without breaking your small business budget.

You can compare term life quotes right on this page using our instant quote tool, or call us at 1-800-712-8519.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Get your Quote