Key Person Plans

Key Person Importance

Key person insurance is designed to insure the lives of your key executives. It helps you protect yourself, the company, and its creditors against the financial impact (loss) should one of your key executives suffer a disabling illness, injury, or premature death.

Functions of a Key Person Plan

  • Establishes your company as the owner, beneficiary, and premium payer of life and disability insurance policies covering a key executive
  • Secures the receipt of needed funds on an income tax free basis in the amount necessary to replace the economic loss of the key executive's talents
  • Provides funding for hiring the right replacement
  • Reassures creditors and employees of the security and continuity of the company

Leadership Economics

Effective leadership recognizes and values talent. As you think about your leadership team, have you considered what would happen if you unexpectedly lost a member of your team?


Your leadership team reflects what you consider mission-critical talent for your business and how it best serves your customers. Your team members also highlight what is necessary for you to do what you do best.


Would the unexpected loss of any team member cause an economic challenges for our business, like:

  • Decrease in sales revenue?
  • Deterioration of critical customer account relationships?
  • Interruption of product, operations, or services?
  • Loss of competitive position in the marketplace?
  • Disruption of creditor trust and relationships?
  • Measurable loss of your ability to focus on what you do best?


Leadership economics would come into play if you answered "yes" to any of these questions. Leadership economics is about minimizing risk, maximizing certainty, and mitigating hardship. Insure against the economic loss your business would suffer in the event a member of your team experiences a disabling injury, illness, or even premature death.

Determining the Value of Insurance

The amount of life and disability insurance coverage a business may need for a given executive depends on various financial underwriting factors.


Generally speaking, a key person's life insurance value derives from a multiple of their executive salary. The multiple typically runs from 2 to 6 times the executive's regular compensation.

Other factors to consider include:

  • How much would it cost to replace the individual's talent and expertise?
  • How quickly could you find a suitable replacement?
  • Should you consider hiring bonuses and possible relocation of a suitable replacement?
  • How long would it take for the new hire to perform at the same level as the key executive?
  • How would you quantify the key executive's contribution to the company's profitability?

Your CPA or financial advisor may also be an excellent resource for estimating the appropriate value of a key executive.

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