Key Person Insurance Calculator – Protect Your Business from Financial Loss
The loss of a key executive or founder can financially disrupt a business. Use our Key Person Insurance Calculator to estimate the coverage amount and premium cost needed to protect your company against the loss of essential personnel. Whether you're a startup, small business, or established company, this tool helps you assess the financial value of your key people, and the insurance you need to secure your future.
Regional Adjustment: California has Higher life insurance costs, which may affect premium costs by approximately 15%.
Key person insurance is a life insurance policy a business takes on a key employee or founder to offset financial losses if that person dies or becomes disabled. It helps cover lost profits, replacement costs, and business disruption.
Key person insurance protects against profit loss and operational disruption, safeguards investor confidence, supports loan repayment and credit protection, and enables smooth leadership transition during difficult times.
Estimate contribution to revenue or profit, factor in replacement and training cost, consider debt obligations tied to that person, and adjust for business recovery period to determine appropriate coverage amounts.
What's the average cost of key person insurance?
Key person insurance costs vary widely, from $500-$5,000 annually for small businesses to $20,000+ for large corporations. Premiums depend on the key person's age, health, coverage amount, and term length. Most businesses pay 1-5% of the coverage amount annually.
How is key person insurance different from life insurance?
Key person insurance is a life insurance policy owned by the business on a key employee, with the business as the beneficiary. Regular life insurance is typically owned by individuals with their family as beneficiaries. The tax treatment and purpose differ significantly.
Who owns the policy in a key person plan?
The business owns the key person insurance policy and pays the premiums. The business is the beneficiary and receives the death benefit if the key person dies. This ensures the funds go directly to the business to cover losses and expenses.
Is key man insurance tax-deductible?
Premiums for key person insurance are generally not tax-deductible as a business expense. However, the death benefit received by the business is typically tax-free. Consult with a tax advisor for specific guidance on your situation.
How much coverage should a small business have?
Small businesses typically need coverage equal to 2-3 times the key person's annual compensation plus replacement costs. For example, if a key person earns $100,000 annually, coverage of $250,000-$500,000 might be appropriate, depending on their impact on revenue.
Disclaimer: This calculator provides an approximate estimate of key person insurance coverage and premiums. Actual policy rates depend on underwriter approval, health factors, and company financials.