Define Key Man Insurance from Schmeg.com

   

Key Man Insurance is needed when there are more than one business owners (or partners) involved in a business together.  These partners are called "key men" or "key persons" in legal contracts such as "key man agreements".  Life Insurance becomes necessary in this situation when there is a need to buy the partner's spouse's end (or inheritance) of the business in the event of the partner (or spouse's) passing.

The best way to go about resolving a buyout situation is with a life insurance policy.  The beneficiary of the policy is usually the surviving spouse who accepts this death benefit in exchange for their equity in the business.

Another need for coverage arises when this key person is so critical to the business that if they were gone, the business would be in jeopardy.  The surviving owners would have a need for life insurance money to cover the cost of replacing that person.

A "Key Man life Insurance" policy is basically the same as on an individual not in a business partnership situation with the following differences:

• The beneficiary named on the policy is usually their business partner or the business itself.

• The owner of the policy is often "the business".

The life insurance policy is only one of the elements in a key man agreement.  The other element is a signed agreement, worked up and witnessed by an attorney which can be put into place after the key man life insurance policy is in place.