May 8, 2026|
7 min read
Every business relies on people who are essential to its success. These key individuals might bring in revenue, manage important client relationships, lead teams or offer unique expertise that is hard to replace. While owners usually prepare for market shifts and economic ups and downs, losing a key employee unexpectedly can cause serious and lasting problems.
Having a plan can lessen the financial impact of losing a key employee. Key person indemnification, also known as key person insurance, is a way to protect a business from the financial effects of a key employee’s early death and to help keep things running smoothly during a transition.
What is key person indemnification?
Key person indemnification is a business strategy that helps protect a company from the financial risk of losing a key employee to death. Usually, it is funded by taking out a life insurance policy on the key employee, with the business as the owner and beneficiary.
If the insured key employee passes away, the policy pays a death benefit directly to the business. This money is meant to cover financial losses and provide cash during a critical transition. The business usually pays the insurance premiums, but these are not tax-deductible.