Key-Person Insurance

Key-person insurance is a life or disability policy on the founder (or other critical individual), owned by the company, that pays the business — not the individual — if that person can’t work. The payout is meant to cover the revenue disruption and the cost of finding and onboarding a replacement. Buyers look for key-person insurance because it signals that the business has thought about continuity. A company without it is telling the buyer: if the founder dies tomorrow, there’s no financial cushion and no plan. That makes the key-person risk worse, not better — and it shows up as a deduction. The coverage amount should be realistic: enough to cover 12–24 months of the revenue the key person is responsible for, plus recruiting costs. It’s not expensive relative to the protection it provides, and having it in place before diligence starts is one of the simplest ways to reduce a line item on the deduction list.