Key Person Insurance Cost Calculator

Life and/or disability insurance owned by the business on a key employee (owner, top salesperson, key engineer) whose loss would significantly hurt the business. Death benefit goes to the company to cover lost revenue, recruitment costs, and creditor obligations.

Common formulas: 5-10x the key person's annual compensation, or the projected lost profits over 1-3 years of replacement. Lenders may require key person coverage equal to outstanding business loans (often SBA-required).

A 10-year term policy for a healthy 45-year-old executive: $1M coverage averages $35-$60/month. Premiums are not tax-deductible (because death benefit is tax-free to the business per IRC 101(j) when properly notified).

Founders and majority owners, salespeople who produce most of the revenue, sole technical leads or patent holders, and anyone who personally guarantees company debt. If their death would halt operations, drive off customers, or trigger a lender default clause, they are a candidate.

The death benefit loses its tax exemption and becomes taxable to the business, which can cut its real value by 20% to 40%. That is why the signed notice must be completed <em>before</em> the policy is issued: it cannot be fixed after the fact.

Because a bank loan, a key patent, or a product still in development can have a 15-, 20-, or 30-year horizon. If the policy term expires before the exposure you are covering, you are left unprotected right when the person is hardest to reinsure due to age or health.