Key-Person Insurance

Key-person insurance — sometimes called key-man insurance — is purchased by an organization on the life or earning capacity of someone whose absence would meaningfully disrupt operations or damage value. The organization, not the individual, is typically both the policy owner and the beneficiary. The payout is intended to give the business time and financial resources to recruit a replacement, manage client relationships, or stabilize operations while recovering from the loss.

In a family office context, the "key person" could be the founding patriarch or matriarch, a long-serving chief investment officer, or even a trusted family advisor who holds critical relationships with outside managers. A single-family office with a lean team is especially vulnerable: losing one senior person can disrupt investment policy execution, vendor relationships, and institutional memory all at once.

Families also encounter key-person insurance in due diligence on private investments. When evaluating a closely held operating company or a small private equity fund, the absence of key-person coverage on the lead manager or founder can be a meaningful risk factor. Structuring and pricing key-person policies appropriately requires working with qualified insurance professionals and, on the tax treatment of premiums and proceeds, with a qualified CPA — the rules are nuanced and jurisdiction-specific.