Key Person Life Insurance in California
Businesses that depend heavily on an owner, executive, salesperson, or other key employee can face insurance concerns involving lost revenue, replacement costs, lender concerns, ownership transition, and disruption after a key person’s death. Understanding those exposures makes it easier to compare policies on more than price alone.
Insurance options can vary considerably between companies. AIM First Insurance Servicescan help clients in California compare available policies and review important differences in coverage, limits, deductibles, eligibility, and exclusions.
Why Consider Key Person Life Insurance?
A business can be financially vulnerable when a particular owner or employee is responsible for important relationships, revenue, expertise, or leadership. Key person life insurance can provide the business with funds after the death of an insured key individual.
The goal is not simply to purchase a policy with the lowest premium. It is to understand the exposures involved and select insurance that fits the individual, property, vehicle, or business as closely as possible.
Key Person Life Insurance Coverage Options
The appropriate coverage depends on the specific situation. Options may include some of the following protections.
Key Person Life Insurance
The business typically owns the policy, pays the premium, and is the beneficiary, subject to applicable consent and legal requirements.
Choosing an Insured Amount
Coverage may be based on the key person’s contribution to revenue, replacement costs, debt obligations, or the expected financial impact of their loss.
Business-Owned Policies
Because the business is generally the policy owner and beneficiary, ownership, beneficiary designations, and tax considerations should be reviewed with appropriate advisors.
Key Person Disability Coverage
Businesses may also consider disability coverage designed to address the financial impact of a key person’s qualifying disability.
Key Person Life Insurance FAQs
What is key person life insurance?
It is life insurance purchased by a business on an owner, executive, salesperson, or other person whose death could create a significant financial loss for the company.
Who owns and receives the benefit from key person life insurance?
In a typical key-person arrangement, the business owns the policy, pays the premium, and is the beneficiary, subject to applicable consent and legal requirements.
How much key person life insurance should a business buy?
The amount may be based on lost revenue, replacement costs, debt obligations, ownership value, recruiting expenses, or the person’s contribution to the business.
Is key person life insurance the same as a buy-sell agreement?
No. Key person insurance protects the business from financial loss, while life insurance used with a buy-sell agreement is intended to help fund an ownership transfer.
