---
title: Key Person Life Insurance for Small Business | Coverfolk
url: https://coverfolk.com/coverage/key-person
updated: 2026-10-08
---

# Key person and business life insurance

If the business would struggle without someone, this pays the business when they die.

[How much do I need?](/calculator)

Updated October 8, 20265 sources[Fact checked](/editorial-standards)

The short answer

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

**Cash to keep going**

The money can help pay bills, cover lost sales, pay debts, and find and train a new person.

**The business owns it**

The business usually owns the policy and pays the premiums. Many banks require it for loans.

**How much to buy**

The amount is based on the person's income, the business's revenue, and how much of that revenue the person brings in.

**Buyouts**

Business life insurance can give a surviving partner money to buy out the share of a partner who died.

**Consent is required**

In Washington, an employer can insure a worker only with written permission. Businesses have an insurable interest in owners and key workers.

**Tax rules to follow**

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.

## Learn more

[**Does life insurance count toward estate tax?**](/answers/estate-tax-and-life-insurance)[**Can I take out life insurance on someone else?**](/answers/insurable-interest)

## Sources

1. [Insurance Information Institute: Insuring against the loss of key personnel](https://www.iii.org/article/insuring-against-the-loss-of-key-personnel)
2. [Florida DFS: Life insurance overview](https://www.myfloridacfo.com/division/consumers/understanding-insurance/lifeinsuranceoverview)
3. [Washington OIC: Learn how life insurance works](https://www.insurance.wa.gov/insurance-resources/life-insurance/learn-how-life-insurance-works)
4. [California Department of Insurance: Life insurance guide](https://www.insurance.ca.gov/01-consumers/105-type/95-guides/07-life/life-ins-guide.cfm)
5. [26 U.S. Code 101(j) (Cornell LII)](https://www.law.cornell.edu/uscode/text/26/101)

Other coverage

## Compare with the others

[Ages 50 to 85

### Final expense

Small whole life plans that pay for a funeral and last bills.

See final expense](/coverage/final-expense)[Ages 18 to 65

### Term life

The most coverage for the least money, for 10 to 30 years.

See term life](/coverage/term-life)[Any age

### Whole life

Coverage that lasts your whole life and builds cash value.

See whole life](/coverage/whole-life)