What is Key Person Insurance?

Key person insurance is a risk management tool private equity firms and businesses use to alleviate any financial strain caused by the untimely incapacitation or death of a senior executive while keeping operations going. These insurance policies involve a party with a financial stake in the business purchasing life and/or disability coverage for one or more key people. This makes the purchaser the policy owner and beneficiary of the proceeds.

Why is Key Person Insurance Important?

As the success of most companies relies heavily on the vision and leadership of a few key people, their absence can have a devastating impact, leading to the erosion of intangible assets such as intellectual capital and customer relations. By purchasing key person insurance, businesses can alleviate the financial strain that arises from such serious events, providing much-needed support to cover search costs for prospective executives, acquisition costs, cash flow as well as managerial and financial liabilities. Key person insurance allows businesses to operate with confidence, knowing that they are equipped to weather any storm.