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3.9 Key person insurance

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The death of a key person could seriously affect the earning power of your business. For example, if you have an associate, partner, or consultant who is critical to a particularly large project or your business as a whole, life insurance should be considered.

The death of a key person may result in decreased confidence on that part of your existing or potential clients, leading to a loss of future contracts, competitive position, and revenue, and to the expense of finding and/ or training a replacement. The amount and type of insurance you should carry will depend on many factors, as designing an evaluation formula for a key person is difficult.

Proceeds of the key person policy are not subject to income tax generally, but premiums are not a deductible business expense.

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