Key person insurance is life insurance a business buys on someone the business can't do without. If that person dies, the business gets the money.
Who it fits
Small businesses that depend on an owner or a few key people, and business partners who need money to buy out a partner's share.
- Who buys it
- Business owners
- Medical exam
- SometimesDepends on age, amount and company
What to know before you buy
The money can help pay bills, cover lost sales, pay debts, and find and train a new person.
The business usually owns the policy and pays the premiums. Many banks require it for loans.
The amount is based on the person's income, the business's revenue, and how much of that revenue the person brings in.
Business life insurance can give a surviving partner money to buy out the share of a partner who died.
In Washington, an employer can insure a worker only with written permission. Businesses have an insurable interest in owners and key workers.
Federal law has notice and consent rules for policies owned by an employer. If they are not met, part of the death benefit can be taxed.
Common questions
Who counts as a key person?
There is no fixed rule. Anyone who brings in money or is needed to run the business might count.
Can it be term or permanent?
Yes. It can be term for a set time, or universal or whole life.
Does the employee have to agree?
Yes. In Washington, the employer needs the worker's written permission. Federal tax rules also require notice and consent.
Is there a cheaper way to cover several leaders?
The Insurance Information Institute says a group can share a first to die policy that pays on the first person who dies.
