What is the main purpose of key person insurance?

The main purpose of key person insurance is to cover costs associated with the death or disability of crucial employees. This type of insurance is designed to protect a business from potential financial losses that could arise when an essential individual, whose skills and contributions are vital to the company's success, is no longer able to perform their duties.

When a key person passes away or is disabled, the company might face significant disruptions, loss of revenue, or the need to invest time and resources into finding and training a replacement. The payout from key person insurance can help offset these costs, providing financial stability during a challenging transition period. This ensures that the business can continue operating smoothly and maintain its financial obligations while it adjusts to the loss of the key employee.

Understanding the purpose of key person insurance is essential for business owners and managers, as it highlights the importance of their key personnel and the financial ramifications their absence could have on the organization.