What is the purpose of key man insurance?

Key man insurance serves a critical function for businesses by providing financial protection in the event of the untimely death or incapacitation of a key employee who plays an important role in the company's success. This form of insurance is designed to help the business mitigate potential losses that can arise from the loss of such a pivotal individual.

When a key employee passes away, their absence can lead to a disruption in operations, loss of clients, and even a decline in profitability due to their unique skills, knowledge, or relationships that have been built over time. Key man insurance provides funds to help the business cope with these challenges, including covering expenses related to recruitment and training for a replacement and helping to stabilize finances during a difficult transition period.

While retaining employees, providing health benefits, and funding retirement plans are important aspects of human resources and business strategy, they do not specifically address the risk associated with losing a vital member of the organization. Therefore, the primary purpose of key man insurance is to protect the business financially against the losses associated with the death of key personnel.