How Key-Person Life Insurance Can Protect Your Business

How Key-Person Life Insurance Can Protect Your Business

Jeff Moses, president of Auto Custom Carpets, was on his way home from a business trip in Ohio when tragedy struck. The small airplane he was riding in lost control and crashed into a creek near Talladega, Ala. The plane exploded upon impact, killing everyone on board.

Jeff Moses’ death left a huge void in the company’s leadership team. Not only was Moses the president and co-owner of Auto Custom Carpets, he was also a charismatic sales leader whose product knowledge and extensive industry experience were integral to the company’s success. Without Moses leading the way, the company could expect an immediate and precipitous drop in sales revenue.

The future of Auto Custom Carpets—and its 150 employees—hinged on the ability of the two remaining partners to quickly find and recruit a qualified replacement before the company’s working capital dried up.

Thankfully, the executive team had the foresight to purchase a Key-Person Life Insurance policy for each of the three partners. Key-Person Life Insurance is simply life insurance on a “key” employee in a business. The business owns the policy, pays the premiums and is named the beneficiary. In the event of the death of the key employee, the business receives the insurance payout, allowing it to remain solvent during a time of flux and uncertainty. The money can be used to make up for lost sales revenue, fund a buy-sell agreement or cover the cost of finding and training a replacement.

The infusion of capital from the Key-Person Life policy enabled Auto Custom Carpets to sign an experienced sales professional away from one of their competitors, and less than 30 days after the tragic crash, the company was back up and running at full speed.

Key Person Life Protects Small Businesses

How Key-Person Life Insurance Can Protect Your Business

As a small business owner, you may employ at least one individual, like Jeff Moses, who is essential to your success. This person may be a partner or have a unique expertise that’s unmatched. If this person’s exit from the business is planned, you can prepare for the loss and take the necessary steps to minimize the impact. However, if the departure is unplanned then your business can be exposed to financial risks.

In this scenario, key-person life insurance can protect your business. Here’s how it works:

  • You purchase life insurance on the key individual(s).
  • You are the beneficiary of the life insurance policy, and apply for and own the policy. If the key employee dies prematurely, the policy pays out to you.
  • Tax-free funds from the policy can be put towards finding, hiring and training a replacement employee. These funds can also be used as compensation for lost business during the transition and financing timely business transactions.
  • The policy can be transferred to a departing key employee as a retirement benefit, or to a different key individual upon the retirement of the original key employee.
  • The policy can be used to buy out the key employee’s shares or interest in the business.
  • Premiums for the policy are based on several factors, including the key employee’s age, physical condition and medical history. The amount of coverage also affects the insurance rate.



If losing one or more employees would have one of the following consequences, key person life insurance could be right for you:

  • A reduction in your earning capabilities
  • The loss of a specialized skill
  • A disruption in everyday business operations


All key-person life insurance policies are custom policies, written specifically for the person and company. To learn more about coverage options, limits and the additional benefits of a key-person life insurance policy, contact Roper Insurance & Financial Services today at 303-721-1145.