Planning topic
Key Person Coverage
Many businesses depend on a few people. Key-person planning looks at what the business would need if one of them were suddenly gone: to keep operating, to steady lenders and customers, and to look after the families involved.
Key person coverage is usually insurance the business owns on the life, and sometimes against the disability, of someone it depends on. If that person dies or cannot work, the benefit is paid to the business, which can use it to recruit, to cover lost revenue, to pay down debt, or to keep its commitments to partners.
What owners usually work through
- Who the business truly depends on: an owner, a top producer, or a hard-to-replace expert
- What losing that person would cost the business, and for how long
- How the business would use the money: hiring, bridging lost revenue, or reassuring lenders
- How the coverage fits with the buy-sell agreement and the rest of the plan
Common questions
What is key person coverage?
It is insurance a business owns on someone whose loss would hurt the business, with the business as the beneficiary. The idea is to give the company money to work with while it adjusts.
Who counts as a key person?
Anyone whose absence would seriously affect revenue, operations, or relationships: often an owner, a top salesperson, or a person with skills that are hard to replace. It is a judgment about the business, not a job title.
How do owners decide how much coverage makes sense?
Owners look at what it would take to replace the person, the revenue tied to them, and any loans or obligations that depend on them. There is no single formula, and the answer changes as the business grows.
Is key person coverage the same as funding a buy-sell agreement?
Not quite. Key person coverage pays the business to help it keep going. Buy-sell funding pays for an owner’s share. Some businesses need both, and the two should be planned together.
Key Person Coverage near you
Trino talks with business owners across the Houston area. Each page below covers the same questions for owners in that community.
General education, not advice — talk with Trino and your own CPA or attorney before making a decision. Nothing is sold on this site.