Key Person Insurance
What it is:
Also called key man insurance, key person insurance is insurance on an important executive's life.
How it works (Example):
For example, let's say John Doe discovers a cure for cancer. All the trials show that his new drug formulation patent. He is one of a handful of people who truly understand the science behind the discovery and can ensure its proper production. Accordingly, while John is busy building and running his new, booming company, the board of directors takes out a key person insurance policy on him. That way, if John dies, the company receive, say, $10 million and can use that to find and pay a successor who is hopefully as scientifically competent as John.most tumors in 30 days, but he still has some work to do on building a company around this new
Why it Matters:
Losing key executives, particularly founders, can be very traumatic for companies. Their talent is usually hard to come by, and their roles are often more than just symbolic -- in many cases these executives are the "face" of a company. When these executives die, often it interrupts production or throws a big wrench into whatever is going on at the time. Key person insurance is intended to help companies overcome those hurdles should they occur. In turn, key person insurance can also help companies become more creditworthy.