Key person insurance
Insurance your business owns on the people it can’t easily replace, so it can carry on if one of them dies, falls ill or can’t work.
- Paid to the business
- to use where it’s needed
- Time to recover
- to replace revenue and recruit
- The full benefit, tax-free
- in most cases, when it’s paid
Key person insurance
If you lost your key person.
Many businesses rely on one or two people for sales, skills or client relationships. Key person insurance pays the business if one of them dies or can’t work, so it has the money to carry on.
Illustration only. Key person coverage can be life, critical illness or disability insurance, owned by and paid to the business.
Types of coverage
Three ways to cover a key person.
Coverage can be life, disability or critical illness insurance, alone or together.
Key person life insurance
Pays the business if the key person dies. Term or permanent coverage, for as long as the business needs it.
Key person disability insurance
Pays the business a monthly benefit while the key person can’t work, for a set period.
Key person critical illness insurance
Pays the business a lump sum after a covered serious illness, whether or not the key person returns to work. Less common, but available.
Key person coverage is one use of business-owned insurance.
Business-owned life insuranceBusiness-owned disability insuranceHow it works
How it’s set up.
Key person insurance is owned by your business, not by the person it covers.
The business owns it
The business applies for the policy, owns it and pays the premiums.
The business is paid
The business is the beneficiary, and decides how to use the money.
The key person takes part
They agree to the coverage and answer health questions when the business applies.
How it’s taxed
Premiums generally aren’t tax-deductible, and the benefit is generally received by the business tax-free.
A general guide. We work with your accountant on how coverage fits your business.
How much
What sets the amount.
The right amount depends on your business and on the person. These are the questions we work through with you.
Lost revenue and relationships
What would the business lose in sales, clients or contracts without them?
Finding a replacement
What would it cost to recruit, hire and train someone new?
Financial stability
How would lenders, suppliers and cash flow be affected, and what would it take to steady them?
Keeping the business running
What would it cost to carry on until a replacement or another solution is in place?
Insurers limit coverage to an amount the business can show it would lose.
Cost
What affects the cost.
Age
Rates rise with the key person’s age.
Health and smoking
Their answers to the health questions.
Coverage amount
The larger the benefit, the higher the premium.
Type of coverage
Life, disability or critical illness, alone or together.
How long it lasts
Term coverage costs less than permanent coverage at the start.
Their occupation
For disability coverage, the kind of work they do.
Is it right for your business?
Who it suits.
May suit you if
- Your business has employees, and one or two of them are hard to replace.
- Losing one person would hurt sales, client relationships or your ability to borrow.
- You want money in place to recruit a replacement and carry on.
Something else may fit better if
- It’s just you, in your own corporation.Business-owned life insurance
- You want to protect the business from your own disability.Business-owned disability insurance
Frequently asked questions
All questionsWho qualifies as a “key person” in a business for key person insurance?
A key person is someone whose skills, knowledge, reputation or relationships are important to the business’s success. This can include an owner, an executive, a department head, a top salesperson, or anyone whose absence would significantly affect the business’s revenue or operations. Key person insurance generally isn’t for a business where the owner is the only employee.
What business risks does key person insurance help address?
It helps a business manage the financial disruption if an essential employee or owner dies, falls ill or can’t work. Losing a key person can affect revenue, client relationships, lending arrangements and day-to-day operations. The benefit can support cash flow, keep the business steady through the transition, and help cover the cost of recruiting, training or restructuring while it adjusts.
How long does key person life insurance provide coverage?
It depends on the type of policy. Term life insurance covers a set period, which suits a need that will end. Permanent life insurance, such as universal life, can last for the key person’s lifetime, for a longer-term need. Coverage can be set for as long as the business needs it.
How long does key person disability insurance provide coverage?
While the key person can’t work, the policy pays the business a monthly benefit for a set benefit period. The coverage itself usually ends when the key person stops working full time for the business, for a reason other than disability, or when it reaches the end date set in the policy. The policy sets out each of these terms, and we can explain them before you apply.
How is “total disability” defined in key person disability insurance?
The definition is set in the policy, and it can differ from one insurer to another. Generally, the key person is totally disabled if an injury or illness stops them from doing the essential duties of their regular occupation, and they’re under a doctor’s regular care. We’ll explain the definition in your policy before you apply.
Related to key person insurance
- Employee group benefits Health, dental and other benefits for your employees.
- Business-owned life insurance Life insurance owned by your company, for protection and planning.
- Business-owned disability insurance Keeps your company going if an owner or key employee is disabled.
- Health spending accounts Pay health and dental costs through your business.
A question about your coverage? Ask us.
No obligation. We’ll tell you plainly what we think, including when you already have what you need.