Key Person Coverage: As an Aid to Buy-Sell Coverage
One of the easiest strategies to explain and implement with business owners is Key Person coverage. The primary purpose of insuring a key person is to help the business get through potentially difficult times should a key person die. A key person can be the business owner or a valued employee. Depending on who the key person is, the business may need funds to hire and train replacements, pay expenses while the business stabilizes, and maintain confidences of employees, customers, and creditors. Key person life insurance can also help a business access credit.
Key person coverage may also be used as a “placeholder” while trying to determine or establish a buy-sell arrangement or used as a way to acquire additional buy-sell coverage for a fast-growing business. The following two cases provide an example of how Key Person coverage was used to support a business owner’s buy-sell objectives.