Benefits

• The most obvious benefit to key person life insurance is that it provides the company with the funds needed to carry on operations in the event of a loss. The proceeds can be used to hire and train a replacement employee, or, if the deceased owned part of the company, the money can be used to purchase the shares back from heirs that may not need or want company ownership.
  
  

Types

• According the the National Association of Insurance Commissioners (NAIC), key person life insurance can be funded by any type of individual life insurance policy. The two main categories for individual life insurance are term life, which provides inexpensive coverage for a set number of years, or permanent life, which is provides a death benefit and a cash value.
  
  

Considerations

• Sit down with your company accountant and financial officers before you purchase a policy to determine how much to insure each person for and what premiums the company can afford. Factors should include their salary and the amount of money needed to recruit and train a replacement or buy company shares from their heirs. The key person's health and lifestyle should also be considered; illness, obesity and risky hobbies can all drive up life insurance premiums significantly or prevent an insurance company from covering her at all.
  
  

How to Purchase

• There are countless companies that offer life insurance. Start by inquiring with companies you already have a personal or business relationship with. A visit with a licensed insurance agent can be helpful; make certain you know whether the person is a broker who can work with multiple companies or a captive agent who can only quote from the company they are contracted with. Compare quotes, keeping in mind what you can afford and what type of insurance is being offered.
  
  

When to Purchase

• The most important time to purchase key person life insurance is when a company is first starting out. Resources are stretched thin, and a small number of people handle the bulk of the responsibility. An unexpected death in the early stages of a company is devastating, and may close the doors permanently.