Key Person Life Insurance

Loss of a key employee can have a profound impact on a business's cash flow. In some cases a key employee is the business. They may be responsible for generating most of the company's revenue, or they may have the creative genius, business acumen, sensitive client relationships, resolve, determination, and reputation that drives the business. Key Person Life Insurance cannot replace the valuable employee, but it can infuse enough working capital into the business to absorb much of the financial impact. It can also fend off creditors who may demand settlement of debts when a key employee is lost. Insurance proceeds are generally income tax free to named beneficiaries.

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Because of the tax advantages and competitive nature of specialized institutional policies designed for this purpose, they are often used as funding vehicles for NQDC (Non-Qualified Deferred Compensation) arrangements.