What is key person (key man) cover?
Key person cover protects a business against the money it would lose if a founder, partner or senior executive died. The key person cover page sets out the full strategy.
The company is the policyholder and the beneficiary, pays the premiums, and insures the key person as the life insured. The death benefit can replace lost profits, repay business loans backed by the key person, fund a buy-sell agreement for a deceased partner's shares and pay for recruiting a replacement. With IUL the policy also builds a cash value, a company asset the business can borrow against through policy loans while the cover stays in force. When the key person retires, the company can keep the policy, insure a new key person or assign the policy to the retiree. Tax treatment depends on where the company is based.
Key person cover, also called key man cover, is life insurance a company takes out on a person whose death would cost the business money. The company pays the premiums and receives the payout.
