Written by Danny Ray

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How Key Man Life Insurance Can Protect Your Business

Every corporation has a key man. What is Key Man Life Insurance?

A superstar employee that brings a lot to the table. May be responsible for the big account at an advertising agency. Or an executive of a fortune 500 corporation. Even the master mechanic at an auto shop. Obviously, companies operate very differently. While some may spread the power evenly between departments, other companies may be highly dependent on just a couple of individuals. Companies that have a few irreplaceable would be devastated if one of them were to pass away.

The company may struggle to stay in business or strive to continue operating smoothly. Recent studies show that less than 15% of companies are prepared to handle the loss of key personnel. It’s extremely risky to have an entire company be so dependent on just one or two individuals. For instance, this is where key man life insurance can help.

What is Key Man Insurance

Key Man

Life Insurance For A Key Man

Key Man Insurance.  Also known as Keyman Insurance, Key Employee Insurance,  Key Man Policy or Key Person Insurance.  Albeit,  it’s not fun to prepare for the death of someone that you know on a personal level, businesses need to be protected just like people. Business partners buy key man life insurance to protect the company from going down the tubes if they lose a key partner.

Owners of smaller operations may cover themselves with life insurance to protect their family. A life insurance policy will take care of their debts, mortgage, and final expenses upon death. These policies can cover business partners as well.

Buying disability insurance is typical for business partners. This insurance can also cover their employees. Disability insurance is meant to cover the expenses that occur after injuries or illnesses prevent people from returning to work.

Meanwhile, key man life insurance provides a different sort of coverage. Key man life insurance covers businesses in the event that they lose one of their most important individuals. While key man life insurance is not for every company, there are some cases where not having key man life insurance is extremely risky.

Insurable Losses Under Key Man Insurance Policies

  • Provide temporary personnel and, if necessary to finance the hiring and training of a replacement.
  • Insurance to protect the companies profits. For example, offsetting lost income from lost sales, losses resulting from the delay or cancellation of any project that the key person was involved in.
  • Insurance to protect shareholders or partnership interests.

You are the Superhero of your Business ~ Invest wisely


Key Person Life Insurance Policy

Key Man Life Insurance

What Should We Consider Before Getting Key Man Insurance

Well, you’ll need to determine whether or not your company is relying heavily on just a few individuals. For example, the owner of the company is covered by key man life insurance. Founders of a business may also be considered key people. In some instances, even some lower-level employees may be essential to the company.

Basically, you should decide whether or not your company would struggle to continue after the loss of an individual. If the answer is yes, the key man life insurance is a good investment. Since every company operates differently, there is no universal rule. Instead, separately the company looks at deciding on which kind of coverage will be sufficient.

How Does Key Man Life Insurance Work

Key man life insurance actually functions quite similarly to regular life insurance. The business buys key man life insurance, and the business is also the beneficiary. In order to maintain coverage, the business partners need to pay the premiums.

If one of the people covered by key man life insurance dies while the policy is intact, the business receives the pre-determined amount of money. The amount can range from a few hundred thousand dollars to several million dollars.

Is Key Man Life Insurance Taxable

Premiums are generally not tax deductible in the U.S. Under the COLI Best Practices Act within the Pension Protection Act of 2006, if certain conditions are not met,  key person insurance proceeds for policies owned by employers can be taxable.  This means the business will get the full face value of the policy.

Key Insurance Quotes

Key Man

Examples of Key Employees ~ Key Life Insurance

  • The Owner of a company
  • The “go to” guy/top salesman or a manager under the owner

Key Man Life Insurance Considerations

  • Consider coverage terms and limits
  • Term vs Whole Life (we will discuss this below) 
  • As your business grows, your coverage limits may change.  Be flexible!
  • Consider adding a Business Exchange Rider.  This is where you would have an option to replace your Key Person with a new Key Person if need be.

Term vs. Whole Life ~ Key Man Life Insurance


Term Life is a cheap affordable option for your business.  Options for term range from 10, 20, 30 years.

Ask your Agent about a company that will offer up to $1,000,000 no exam coverage for a key employee. Therefore, this is an option if your key employee does not wish to take an exam.  Keep in mind, there are many options ranging from $20,000, $500,000 or up to a million.  Ask your agent to guide you.  The more honest and detailed the information you give him/her, the better they can guide you through the process.

Whole Life:

Whole life insurance builds cash value and will last the lifetime of the insured. In fact, a benefit of cash value life insurance will allow you to access the funds via tax free policy loans.  Think about it this way, it is an added incentive for your key person to stay with your company until his or her policy has fully matured.  Not to mention, add liquidity to your business.

Call your Agent to ask about term vs whole life insurance and to go over your key man life insurance rates.

How Much Is Key Man Life Insurance Needed 

The amount depends on how much the company pays in premiums. Therefore, successful businesses with bigger budgets can afford better coverage. This works out since more successful businesses have more to lose, which means they should definitely consider getting proper protection.

Before deciding on how much you want to pay in premiums, you should decide how valuable the person your covering is to the company. It’s usually a good idea to follow the same general rule for standard life insurance; the figure should probably be at least 5 to 10 times the person’s salary.

You also need to consider how much money it will cost to hire a new person to fill the position, or how much it will cost to fulfill their duties without them. Of course, these factors require a decent amount of calculations.

Hiring an independent insurance agent can help people and businesses find the best and most affordable coverage. An independent insurance agent can connect you with the top life insurance companies. On top of this, they can answer any questions or concerns.

Top Key Man Life Insurance Carriers

  • Protective
  • Banner
  • Prudential
  • John Hancock
  • AIG

Key Man Life Insurance ~ Underwriting

Your independent Agent can guide you with what to expect during the application and underwriting process, but generally, underwriters of key man insurance want to know the following:

  • What type of business you are operating
  • The role of the key person ~ not everyone is considered valuable enough to hold key person title.
  • What skill set the key person has, and experience in that skill ~ the more experience,  the more vital role they play in the business.
  • Income ~ this helps to determine how much coverage is needed.


Term Life Insurance

Danny Ray ~Founder/Owner of PinnacleQuote

My name is Danny Ray, I am your Personal Independent Agent! We are based out of Jacksonville, Florida.  However, I am licensed in 49 states and contracted with almost 5 dozen A/A+ rated carriers. Our goal at PinnacleQuote is to make sure your business is protected.  I am here to answer any and all questions you may have.  Like me, you have built your business from the ground up, you will want to make sure what you started stays intact financially, throughout your lifetime or at least until your retirement.  Who knows perhaps you want your children to take over one day when you retire. Your business is an investment Keep your business goals and passion going strong by protecting it with Key Man Life Insurance!

With 25+ years of experience, the level of dedication I am looking to show you is second to none!

Call us today to get your Key Man Insurance Quotes!   Contact us at PinnacleQuote (855)380-3300.


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Danny Ray & Lisamarie Monaco Contributed To This Article
Danny Ray & Lisamarie Monaco Contributed To This Article

Here at PinnacleQuote Life Insurance Specialists we always put the CLIENT FIRST!! We are not in the business of selling life insurance, but to educate, and provide the best options for you and your family. This way you can make the best choice to properly protect your family. We have over 300 life products available to tailor make a policy for any one of our client’s needs!

We offer the Best PRICE, Best CARRIER, GUARANTEED!

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