---
title: Key Person Life Insurance
description: Key Person Life Insurance can create a business continuation plan that outlines how your business will function if you lose key employees.
image: https://www.lgplanninggroup.com/hubfs/AdobeStock_449752604.jpeg
---

 2

# Key Person Life Insurance

 Feb 16, 2023 12:34:31 PM

By [Matthew Glazer](https://www.lgplanninggroup.com/blog/author/matthew-glazer)

***In addition to proper coverage, Key Person Life Insurance can create a business continuation plan that outlines how your business will function if you lose key employees.***

Most organizations employ at least one individual who is essential to the company’s success. This person may be a partner, majority stockholder or an individual with expertise that’s unmatched throughout the rest of the company. If this person’s exit from the company is planned, such as through retirement or a voluntary termination, then you can prepare for the loss and take the necessary precautions to minimize the impact.

However, if the departure is unplanned due to a death, disabling accident or sudden resignation, then the company is exposed to financial risks. If your organization employs individuals who are vital to its success, consider key person life insurance to offset your risk. This coverage can protect your organization’s solvency in the event that you lose the key person or people without warning, and also the investments made by lenders and investors to the company.

 

**How Does Key Person Life Insurance Work?**

Here’s a general guide detailing how key person life insurance can protect businesses:

- The employer purchases key person life insurance on the key individual(s).
- The employer is the beneficiary of the policy and applies for and owns the policy. If the key employee dies prematurely, the policy pays out to the employer.
- In some cases, IRS guidelines allow for tax-free dollars from the policy to be put towards finding, hiring and training a replacement employee, compensation for lost business during the transition, and financing timely business transactions.
- Depending on the specific language in the policy, it can sometimes be transferred to a departing key employee as a retirement benefit.
- The policy can be used to buy out the key employee’s shares or interest in the company.
- Premiums are based on several factors, including the key employee’s age, physical condition, and health history. The amount of coverage also affects the premium.

 

Key person life insurance has a number of advantages:

- Policies can be easily implemented and don’t require IRS approval. Your business only needs to prepare an annual report for the IRS.
- If all IRS guidelines are followed, the policy’s benefits may be paid to the company tax-free.
- Customers, creditors, lenders, and stockholders have the assurance that the business has a continuation plan and coverage in place.
- There is flexibility in how the funds can be used.

 

**LG Planning Group Is Here To Help**

LG Planning Group understands that your key assets need protection, and we are here to help. Please contact [info@lgplanninggroup.com](mailto:info@lgplanninggroup.com) or call **631-589-6960 **today to learn more about our key person life insurance solutions.

 

*Disclaimer: This article is provided by LG Planning Group for informational purposes only.** The information provided herein is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice for coverage. © 2009-2010, 2013-2014 Zywave, Inc. All rights reserved.*

[Key Person Life Insurance](https://www.lgplanninggroup.com/blog/tag/key-person-life-insurance) [life insurance](https://www.lgplanninggroup.com/blog/tag/life-insurance)

![Matthew Glazer](https://www.lgplanninggroup.com/hs-fs/hubfs/Matthew%20Glazer%5B1%5D.jpeg?width=150&height=150&name=Matthew%20Glazer%5B1%5D.jpeg)

[Matthew Glazer](https://www.lgplanninggroup.com/blog/author/matthew-glazer)  / About Author

Matthew Glazer, Co-Founder and Co-Managing Partner at LG Planning Group, is a 20+ year veteran of the financial services and insurance industries. Matthew’s experience has positioned him to be the primary business development director with a specialized focus on finding and creating new ways to more completely service and protect LG Planning’s clients businesses and personal futures. Matthew excels at not only understanding and fulfilling the needs of his clients but also at putting together the pieces to help build comprehensive growth, management and maintenance packages. With a well-rounded top to bottom approach, Matthew is able to help his clients navigate both their business and personal journeys.

[![](https://www.lgplanninggroup.com/hs-fs/hubfs/AdobeStock_218581809.jpeg?width=150&height=150&name=AdobeStock_218581809.jpeg) Previous Article Annuities Explained ](https://www.lgplanninggroup.com/blog/annuities-explained)

[![](https://www.lgplanninggroup.com/hs-fs/hubfs/AdobeStock_216851648.jpeg?width=150&height=150&name=AdobeStock_216851648.jpeg) Next Article Is My Insurance...Hard or Soft? ](https://www.lgplanninggroup.com/blog/is-my-insurance...hard-or-soft)

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