Key Employee

What is Key Employee Insurance?

Key employee insurance is frequently overlooked in a risk management strategy. The simplest way to understand Key Employee insurance is to think of any lost revenue associated with one of your high-earning employees going out because of a disability or a sudden death. This coverage protects the lost revenue to your business that this team member drove in. A policy will regularly cover the cost of lost revenue from losing this employee and can also help your business with extra cash needed to seek out and compensate for replacing this vital part of your business.


With Key Employee coverage, the business purchases insurance on that specific individual, and the business is the beneficiary. Meaning that if something happens to the individual employee, the company receives a check.

Whom does it protect?

While the coverage is based on a single individual, Key Employee coverage protects the revenue streams of your business. By providing additional capital to maintain your cash flow, the other sums of money that can be made available to find a replacement shift the burden away from your cash reserves, allowing you to allocate capital appropriately to its intended use.

When do I need Key Employee for my business?

Key Employee coverage is critical if a select number of individuals drives your business revenue, and you can identify the monetary value they provide. Additionally, suppose your business does not have the excess capital to cover the lost revenue and additional compensation required to hire a new key employee. In that case, Key Employee coverage can be vital to your risk strategy.

What are the risks if I don’t have appropriate Key Employee coverage?

Simply put, if you lose an employee that is the driving force for a large portion of your revenue, you could lose that revenue. You could lose that revenue and risk a slower growth trajectory for your business.

How often should I review my Key Employee?

Key employee coverage should be reviewed annually once your business can report on the financial impact that specific employee had on that year’s annual revenue. In most cases, coverage is rarely increased once a policy is in place. However, should that employee or executive have a great year, it is worth reviewing your options.

What are the most important elements of a policy?

Most Key Employee coverage is provided through the purchase of individual disability insurance or term life insurance. Each employee is individually underwritten, and evidence is required to prove to the insurance company that the key employee is genuinely driving the revenue or providing essential services to the success and growth of your business.
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