What Does Key Person Insurance Mean?

As its name suggests, it is a life insurance contract made for a key person of a company. There are certain cases when an enterprise wants to ensure itself, therefore purchases this type of products on a key manager’s or executive's life. The company agrees to pay premiums for the insurance policy, and for these payments it becomes the beneficiary of this scheme.

This insurance product is also called ‘key man/woman (or business life) insurance’. The latter term suggests that this contract is mainly used by and on businessmen, and not by individuals.

Key Person Insurance Explained

The reason for companies to conclude such insurances is the possible negative effects that would result from suddenly losing a key manager for instance. In order to defend some way the firm’s operations, they buy key person insurance. In case the insured person dies, the company gets a certain amount of money which in turn can be used to find an appropriate person for that position, and provide trainings for him or her. In case there is nobody who could substitute the former key person, the company might use the insurance’s payouts to develop a new business strategy.