What is the primary purpose of key person insurance?

The primary purpose of key person insurance is to mitigate the financial impact that a business may face due to the death or disability of a key employee. These individuals, often integral to a company's operations, contribute significantly to its success and value. In the unfortunate event of their passing, the organization could suffer substantial financial losses, not only from the immediate loss of their expertise and leadership but also through potential disruptions to revenue and client relationships.

Key person insurance provides a financial safety net by offering a death benefit to the company, which can be used to cover various costs such as hiring a replacement, settling debts, or managing cash flow during a transition period. This allows the business to maintain stability and continue operations despite the loss of a vital contributor. Thus, this type of insurance plays a crucial role in protecting a company's long-term viability and ensuring its ongoing ability to achieve goals without the undue strain of financial loss caused by the absence of a key individual.