Business, Legal & Accounting Glossary
Key person insurance, also known as key man life insurance, key woman life insurance, and business life insurance, is a life insuinsurance policy purchased by a company on the life of an employee. A company usually buys key person insurance on those employees whose death could have significant adverse effects on company business. The concept behind key person insurance is that certain employees are a valuable asset to a company. A company might use the proceeds from key-person insurance to hire a replacement or to train someone to fill that vacancy. Another purpose for the funds generated by the benefit of key person insurance might be to help replace profits that the key person might have generated in the future. Key person insurance is usually paid for by the company with the company as the beneficiary of the policy. Premiums for the key person insurance are usually not tax-deductible but the death benefits are usually received tax-free. A self-owned sole proprietorship may also benefit from key person insurance. The proceeds from the key person insurance on the owner might help fund any after death buy/sell agreement. Key person insurance is also a benefit to the company in the event that the employee is disabled. Key person insurance is often purchased a part of a total business insurance package.
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This glossary post was last updated: 10th February, 2020