Term usually \u2014 match key person's career length.

Person leaves company?

Cancel or convert policy. May offer to employee.

Separate Key Person Disability policy needed.

Tax issue with no consent?

Premiums + benefit may be taxable; high importance.

Buy/Sell agreement coverage?

Different policy \u2014 for partner buyouts.

Key Person Life Insurance

Key Person insurance: 5-10× the person's annual contribution to profit. Company is beneficiary. Tax-free death benefit.

Annual Profit Generated by Key Person ($)

Replacement Multiplier

Key Person Age

Term Length (years)

Coverage

—

Term Annual Premium

—

Whole Life Annual

—

Annual impact	—
Multiplier	—
Age	—
Term length	—
Coverage amount	—
Term premium	—
Whole life premium	—

Key Person life insurance protects a business from financial loss due to the death or disability of an essential employee (founder, top salesperson, technical expert). The company owns, pays premiums, and is beneficiary. Death benefit is tax-free if structured correctly.

Who Qualifies

Founder/CEO. Top revenue-generating salesperson. Unique technical expert. Person responsible for major client relationships. Anyone whose loss would cause 25%+ revenue drop. Calculate impact via revenue attribution + replacement cost analysis.

Calculation Methodology

Method 1: 5-10x annual income contribution. Method 2: replacement cost (recruiting, training new person). Method 3: revenue loss + debt-service coverage. Combine methods; typical coverage 8-10x annual impact.

Tax Treatment

Premiums: not tax-deductible to company (since beneficiary). Death benefit: tax-free under IRC 101(j) if proper notice + consent. Without notice/consent: benefit taxable. CRITICAL: get insured's signed consent BEFORE policy effective date.

Last updated May 2026. Sources: III Key Person Insurance.