Key Person Life Insurance

Published December 20, 2022

Anyone can spend their whole life building the large or small business of their dreams and It’s a rewarding experience like few others, but it’s also one that can be irreparably damaged with one bad stroke of luck, one serious incident, or the loss of one key employee. 

Key Person Life Insurance

You can create a key person plan and have your employees apply in 10 minutes or less! No need to wait to speak to an agent, you got this!

Savvy business owners know they must take steps to protect their business in many ways so that they can continue to prosper under all conditions.  And one of the ways they do this is by securing key person life insurance for themselves and important employees who are vital components of their operations. This strategy is commonly known as Key Person Life Insurance and is a type of company-owned life insurance (coli). 

Key person life insurance policies are taken out by companies on their employees, with death benefits that are paid to the company, rather than to the insured person or to their estate or heirs.  Businesses pay all the premiums and in return, they receive all of the insurance proceeds. 

It is a smart business move that protects a company from the untimely death of an employee who plays an essential role in the financial health of a company. 

Key Person Life Insurance can be used to maintain the health of a business in several ways

It provides cash flow flexibility during the transition period as the company is the beneficiary of the policy.  It boosts the creditworthiness of a company.  It can be used to help secure business loans to help a business grow and expand.  Satisfy a key business need by using death benefit proceeds to purchase the ownership interest from the deceased person’s estate.  It provides peace of mind to creditors and customers that a company is on stable financial footing.  It is simple to implement and offers businesses complete flexibility as to who they want to insure.  It can help retain key employees who see it as a significant employee benefit when several executives are covered.  It can be implemented no matter what the size of the company is. Policies exist to help businesses large and small.  It remains a very affordable option to provide all of these other benefits. 

Death benefits paid to the business are not taxable and investment earnings derived from insurance premiums grow tax-deferred in the policy, providing a financial cushion for the business as well. 

How much key person life insurance should I buy?

After determining that buying Key Person Life Insurance is a good business move, the next question then becomes how much insurance coverage to buy.  Placing an exact value on an employee and their contributions can be a difficult proposition.  

While the exact amount of coverage will vary by situation and by company needs, the challenge for a life insurance company and company ownership is to determine what the realistic loss of a key employee would be to a company if they pass away or become disabled to the point of not being able to contribute any longer.  

While many methods exist, there are three that tend to be favored by most businesses: 

Multiples of income.  This is the most simple and straightforward method used to determine a key man life insurance policy Amount.  An insurance company will base the amount of insurance needed on a multiple of the key executive’s salary and benefits.  Typically, the multiple will be anywhere from five to seven times this amount.  For example, if a key executive or top salesperson has a salary and benefits package of $250,000, an insurance company may use a multiple of six and thus issue a policy valued at $1.5 million.  Individual situations will vary, leading to higher or lower values. 

Replacement cost.   This method uses the assumption of how much it would cost to replace the key executive if they pass away or can no longer render services to a company.  Calculating this cost not only includes salary and benefits, but also costs associated with recruiting, training and bringing the new employee up to the same level of contribution as the former employee.  Some insurance companies will also factor in the projected loss of revenues that could occur during the transition time following the death or disability of the key executive. 

Contribution to earnings.   This method attempts to calculate the percentage of contribution that a key person adds to a company’s bottom-line profit.  This can be a preferred method when the key person is a company’s top salesperson who contributes a significant amount of sales volume and profits to a company’s bottom line.  Insurance companies will take into account the actual value of the company’s profits directly attributable to the key person and multiply it by the number of years it would require to replace those numbers by hiring and training another replacement employee. 

In using these valuation methods, many insurance experts agree that a business owner should purchase as much key person insurance as they can afford, providing the greatest amount of protection for their company. 

To save on premiums, it is recommended that a company purchase term insurance versus whole or variable life policies which carry higher premiums and pay out greater commissions for insurance agents.  Because a person’s employment will be for a specific amount of time, term insurance makes the most sense. 

It’s also important to get quotes from several sources, as costs can vary from company to company.  And it’s also wise to get quotes on a variety of amounts ranging from $250,000 to $1 million or more.  The bottom line is to remember that as a business owner, the primary consideration is to purchase the amount that will protect the short-term cash needs of a business until the key person can be replaced, restoring financial health to the company. 

Key Person Life Insurance as part of a business succession plan

In some instances, a business may not be able to recover from the loss of a key executive.  That key executive may be the owner and the face of the company, or an employee whose contributions will never be able to be fully replaced under any circumstances. 

When this is the case, key person insurance can be an effective component of a broader business succession plan to help provide the funding necessary to the business to continue operating.  Key Person Life Insurance is not the same as funding a Buy-Sell Agreement.  Whether or not key person life insurance is purchased, all companies of any size should have a business succession plan in place no matter what.  A Buy-Sell Agreement ensures that your family or your partner’s family has received a fair and agreed-upon purchase price for the deceased partner’s ownership in the business and provides immediate funding for this.  Having Key Person Life Insurance in place as well as a Buy-Sell Agreement funded with Life Insurance is vital for the health of a company and addresses a variety of contingencies that can otherwise threaten the overall health of the business. 

Without a Buy-Sell Agreement, prudent advanced planning utilizing key person insurance can be an important element of a succession plan that can provide the needed bridge capital and flexibility until the succession plan can be put into action.  

Unfortunately, statistics show that only a fraction of all small businesses have a succession plan in place, often putting extreme stress on the survival of many businesses in times of transition.  

A Study by Wilmington Trust in November 2019 Showed some Key findings:

  • 69% of business owners are unprepared to sell their businesses
  • Though 89% of business owners say their business will survive without them, only 55% have developed a some version of a transition plan

How much does life insurance cost?

Age

Gender

$100,000

$250,000

$500,000

25

25

25

Female

Male

Instant Decision

$7.66

$9.40

Instant Decision!

$10.01

$14.36

Instant Decision!

$13.92

$22.62

Instant Decision!

35

35

35

Female

Male

Instant Decision

$8.53

$9.40

Instant Decision!

$12.18

$14.36

Instant Decision!

$18.27

$22.62

Instant Decision!

45

45

45

Female

Male

Instant Decision

$12.09

$14.62

Instant Decision!

$20.23

$24.58

Instant Decision!

$34.37

$43.07

Instant Decision!

50

50

50

Female

Male

Instant Decision

$17.05

$20.79

Instant Decision!

$29.15

$36.76

Instant Decision!

$51.77

$64.38

Instant Decision!

55

55

55

Female

Male

Instant Decision

$23.84

$29.58

Instant Decision!

$42.20

$53.29

Instant Decision!

$73.52

$93.53

Instant Decision!

60

60

60

Female

Male

Instant Decision

$34.02

$46.11

Instant Decision!

$61.77

$84.83

Instant Decision!

$107.88

$148.77

Instant Decision!

65

65

65

Female

Male

Instant Decision

$51.94

$70.12

Instant Decision!

$95.48

$129.85

Instant Decision!

$164.87

$224.90

Instant Decision!

The above rates are run for 10 year term at the Age & Gender shown, in the State of Colorado at Preferred Plus underwriting (best underwriting). These rates are not a valid offer, you will need to complete a quote to view the initial rate for your situation, and the application process will verify your rate.

What other kinds of business insurance do you need? 

Key Person life insurance is an important part of the overall long-term protection of your business, but there are also many other kinds of insurance you should consider as well.  In fact, the right kinds of insurance should be a primary part of your business operations to safeguard everything you have worked for, while also protecting your employees, your family, and your financial well-being.  

There are several other aspects of your business you should consider insuring.  Each will have its own unique set of factors that will determine how much coverage you need.   Some of the most common types of insurance include: 

Liability  There are two types of liability insurance you should consider.  General liability insurance protects your business in instances where a customer is injured on your property.  It will also pay for your legal defense in cases where you are sued due to claims that your product or your service caused a person harm in any way.  Professional liability insurance protects you against claims rising against you by others who claim your service caused them financial loss. 

Property  Protects the physical assets of your business, including buildings, inventory, equipment and other hard assets. 

Workers’ compensation  – If you have employees you will need to have workers’ compensation insurance to cover medical bills arising from any illnesses or injuries that took place as a result of work activities. 

Business interruption  If your business is not able to operate due to a property loss, this type of insurance payout will cover lost income during the period in question. 

Health insurance  With the implementation of the Affordable Care Act, it is critical that you know what your responsibilities are as an employer and how they relate to you and your employees. 

Commercial auto  If you or your employees drive vehicles that are owned by your company, or that are personal vehicles that are driven during the course of business, you need to have a commercial auto policy in place to protect you from potentially devastating losses that could be the result of an auto accident. 

How to get a Key Person Insurance Quote 

We have made Planning and Buying Key Person Insurance simple and fast, with our well-thought-out process that you can complete in just a few minutes.  If you click HERE, we will direct you to our planning tool which not only allows you to see a consistent valuation process for a Key Person, but will also allow you to send the application link directly to your key employee where they could be approved in as little as 5 minutes through our process!

Key Person Life Insurance

You can create a key person plan and have your employees apply in 10 minutes or less! No need to wait to speak to an agent, you got this!

Which Type of Insurance is right for you?

Everyone has their own needs, wants, and wishes for buying life insurance. Ultimately the best life insurance policy is the one that pays out to your beneficiaries when you need it to. Working with a Quote-Bot will help you find a budget-conscious life insurance plan to make sure your family members or business partners are properly taken care of when you need them to be. Here are two of our most popular term life insurance products.

10-year term life insurance

20-year term life insurance

  • Low Premium Payments
  • Level Premium for 10 Years
  • Level Death Benefit
  • Coverage for a Shorter Needs
  • Able to Convert to Permanent Insurance
  • Generally Provides a Tax-Free Death Benefit
  • No Cash Value Accumulation
  • Low Premium Payments
  • Level Premium for 20 Years
  • Level Death Benefit
  • Coverage for a Longer Needs
  • Able to Convert to Permanent Insurance
  • Generally Provides a Tax-Free Death Benefit
  • Possible to have Return of Premium

Why work with quote bot?

We simplify the insurance quoting and application process without sacrificing your freedom of choice. You see what an agent would see, there is no hidden information. Then you can make decisions on your own, apply, and receive an instant decision all in less than 10 minutes.

Fast Quoting Process

Our quoting process takes about a minute to complete and view your quote. We also instantly update your quote with any changes you would like to see, without having to start all over!

Instant Decision Underwriting

For many, you can go from our quote to a completed purchase in less than 10 minutes! Our Instant Decision process keeps you from having to wait around to see if you qualify.

Solutions That Fit Your Needs

We pride ourselves in providing high-quality and well-planned solutions no matter how big or small your need is. Our solutions will bring you from concept to completed purchase in minutes!

Frequently Asked Questions

Nuestro proceso y nuestras soluciones están diseñados para ayudar a eliminar la necesidad de hablar con un agente. Pero sí, puede hablar con un agente si lo desea. Puede utilizar la función de chat de esta página o llamar y hablar con un agente.

Our process and solutions are designed to help remove the need to talk with an agent.  But yes, you can speak with an agent if you like.  You can use the chat feature on this page or call and speak with an agent.

El impago de una prima es un asunto importante que hay que tener en cuenta y, afortunadamente, existen programas que le ayudan a recibir una notificación en caso de impago. Normalmente, dispone de un periodo de gracia de unos 30 días para efectuar el pago. La compañía de seguros le enviará un correo electrónico, pero también puede enviarle correo en papel, para informarle del problema de pago y darle instrucciones sobre cómo resolverlo. Si no efectúa ningún pago durante el Periodo de Gracia, tendrá que volver a someterse al proceso de suscripción para mantener su cobertura.

Missing a premium is an important thing to know about and thankfully there are programs in place to help notify you if you do miss a payment. Typically you have around a 30-day grace period to make your payment. The insurance company will email you but may send you paper mail, making you aware of the payment issue and giving you instructions on how to resolve it. If you do not make a payment during the Grace Period, you will have to go through underwriting again to keep your coverage.

Si tiene entre 18 y 50 años y solicita una prestación por defunción de hasta 1.000.000 $, o si tiene entre 51 y 65 años y solicita una prestación por defunción de hasta 500.000 $, es posible que no necesite someterse a un examen. Cuando presenta una solicitud fuera de esas edades o prestaciones por defunción, se le exige un examen médico. No te preocupes, te ayudaremos a organizarlo. Estos exámenes son obligatorios (si son necesarios) para que la compañía de seguros pueda comprobar si cumple los requisitos y el importe de la prima.

If you are age 18-50 and applying for up to $1,000,000 of Death Benefit, or ages 51-65 applying for up to $500,000 of Death Benefit, you may not need an exam! When you apply outside of those death benefits or ages, you are required to have a medical exam. Don’t worry, well will help arrange that for you. These exams are required (if needed) so the insurance company can verify your eligibility and your premium amount.  

Decisión instantánea significa que le comunicaremos inmediatamente (posiblemente hasta en 90 segundos) si ha sido aprobado o no, si necesitamos más información, si ha sido rechazado o si necesita un examen. No hace falta esperar mucho para obtener respuestas.

Instant decision means that we will let you know immediately (possibly up to 90 seconds) whether or not you are approved, if we need more information, if you were declined or if you need an exam. No need to wait around very long for answers.

Nuestro proceso de Decisión Instantánea tarda 10 minutos en completarse para la mayoría. Algunos son más rápidos, otros más lentos. La buena noticia es que una vez que haya terminado de rellenar su solicitud, le daremos las respuestas al instante o en un plazo de 90 segundos más o menos. Es rápido.

Our Instant Decision process takes 10 minutes for most to complete. Some are faster, some are slower. The good news is that once your done with your application, we give you answers anywhere from instantly or up to a 90 second wait or so. It’s Fast!

No. Nos esforzamos por ofrecer una solución que le permita ir de principio a fin en cuestión de minutos sin necesidad de hablar con un agente.

No. We strive to provide a solution that allows you to go from beginning to end in minutes without the need for speaking to an agent.

An Agent-Less Process

Life is busy, and most people don’t have the time to buy life insurance the traditional way. We get it. So we’ve made it possible for you to quote, customize and buy life insurance in less than 10 minutes without needing an agent.