People and operations
What is key person insurance and what does it protect against? Insurance owned by the business on an individual whose loss would materially damage revenue, operations, or financing.
Key person coverage recognizes something every small and mid sized business knows instinctively: some people are not replaceable on a normal hiring timeline. It is generally written as life and sometimes disability insurance owned by and payable to the business, on an individual whose death or disability would create a real financial hole. The proceeds buy time to recruit, to reassure lenders and customers, and to absorb the revenue dip.
It is worth being precise about what it does and does not do. Traditional key person policies respond to death or disability. They are not a remedy for a key employee resigning, being recruited away, or leaving in a restructuring, which is a talent and continuity problem rather than an insurance one. Lenders and investors frequently require key person coverage as a condition of financing, so it often shows up as a contractual obligation before anyone chooses it voluntarily.
The adjacent risk is worth naming: when critical staff leave for any reason, the institutional knowledge, system access, and client relationships leave with them. That belongs in an offboarding process, not a policy.
Heard on the show. Jessica works through this one in How Leaders Turn Turbulent Layoffs Into Risk-Ready Strategy, with the full story and the transcript.
This page is education, not advice. Policy language varies by carrier, form, and state, so confirm how your own program is written with a licensed insurance professional.
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