phrase · also: keyman, key-person life
key person
In plain English
Life insurance owned by a business on a key employee or owner — the business is the beneficiary.
If your top salesperson dies and revenue drops 40%, key-person insurance funds the gap while you replace them. Owners use it to fund buy-sell agreements; lenders sometimes require it on principals.
What it covers
A death benefit paid to the business upon the death of the named insured — typically used to replace lost revenue, hire and train a successor, fund a buy-sell, or assure creditors.
What it does not cover
It is NOT insurance for the family of the insured. The business owns the policy and is the beneficiary. Personal life insurance is separate.
Where it trips people up
Business deductibility doesn't apply — premiums on key-person life insurance are not deductible to the business. The death benefit is generally received tax-free, however.
The technical version
Life insurance owned by a business on the life of an employee or principal whose loss would significantly affect the business, with the business as both owner and beneficiary.