In most small and mid-sized businesses, the enterprise value is concentrated in a small number of people. The founder who owns the client relationships. The technical lead whose knowledge is mostly in their head. The salesperson responsible for a disproportionate share of revenue. If one of them disappears suddenly, the company is in a different situation overnight.
Key-person insurance is straightforward in its mechanics. The business owns the policy, pays the premium, and is the beneficiary. If the insured person passes away, the proceeds go to the company — not to the family — and the company uses them to recruit and onboard a replacement, reassure customers and lenders, and absorb the revenue dip during the transition. It buys time, which in a crisis is the most expensive thing to be without.
The amount of coverage isn't arbitrary. A serious calculation considers the time required to replace the person, the cost of finding and training the replacement, the realistic revenue impact during the transition, and any debt or contractual obligations that depend on that person's continued involvement. Most small businesses with concentrated talent are meaningfully under-insured on this dimension — often because no one has ever raised it.
Educational content only. Nothing in this lesson constitutes legal, tax, or investment advice. Insurance products are governed by the policy contract issued by the carrier.