Who benefits from key person insurance in a business context?

Key person insurance is designed to protect a business from the financial impact that may arise from the loss of an essential employee, often referred to as a "key person." This could be a founder, executive, or anyone critical to the company’s operations and success.

When a key person passes away or becomes incapacitated, the business entity itself benefits from the insurance policy as it receives a lump sum payment. This financial support can be crucial in covering lost revenue, recruiting a replacement, managing debts, or stabilizing operations during a challenging period.

While other parties, such as employees, the family of the key person, and investors, may feel the effects of the loss, they are not the primary beneficiaries of the policy. Employees may benefit through job security if the business can sustain itself, families may receive indirect benefits depending on the situation, and investors may have a vested interest in the business's health, but the direct financial benefit of the insurance policy itself goes to the business entity.