Also known as: key person life insurance · key man insurance · keyman insurance
Life (and sometimes disability) insurance a company buys on a founder or critical employee, with the company as beneficiary, to survive their loss.
Key person insurance is a life, and sometimes disability, policy that a company takes out on an individual whose death or incapacity would materially harm the business, typically a founder, technical lead, or top salesperson. The company owns the policy, pays the premium, and is the beneficiary, so it receives the payout to cover lost revenue, recruiting a replacement, reassuring investors and lenders, or winding down gracefully. Venture lenders and some investors require key person coverage on founders as a condition of a debt facility or financing.
Key person insurance is a life or disability policy a company buys on a founder or critical employee. The company owns the policy and is the beneficiary, so if that person dies or is incapacitated, the business receives a payout to offset lost revenue, fund a replacement search, repay debt, or reassure investors.
A venture-debt lender is betting on the company's ability to execute, which often hinges on one or two founders. Requiring key person life coverage, frequently assigned to the lender, protects the loan if the founder is lost. It is a common condition in venture-debt term sheets.
Personal life insurance is owned by the individual and pays their family. Key person insurance is owned by the company, paid for by the company, and pays the company, it protects the business, not the individual's household.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.