Guest Blog – Protecting Your Business with Key Person Life Insurance
Every business has individuals whose skills, vision, and relationships are critical to success. The sudden loss of such a “key employee” can disrupt operations, strain finances, and even threaten the company’s survival. Key Person Life Insurance is designed to safeguard against this risk.
What is Key Person Life Insurance?
Key Person Life Insurance is not a special type of policy but rather a way to use life insurance to protect a business. The company purchases, owns, and is the beneficiary of a life insurance policy on a vital employee. If that individual passes away, the policy provides funds to help offset the economic loss.
Who Is a Key Employee?
A key employee is someone whose contribution is central to the business’s profitability or continuity. This may include individuals who:
- Make critical management decisions
- Drive sales or production
- Maintain strong relationships with clients, creditors, or suppliers
- Possess unique skills or expertise that are difficult to replace
Why It Matters
The loss of a key employee can cause:
- A gap in leadership or expertise
- Disruptions in revenue or client relationships
- Credit challenges if lenders lose confidence
- Costly recruitment, hiring, and training of replacements
In businesses with multiple partners, the sudden death of a partner can also create ownership and succession challenges. Without proper funding in place, surviving partners may find themselves forced to buy out the deceased partner’s share using personal or borrowed funds—or become business partners with the deceased partner’s spouse or heirs who may have different goals. Key Person Life Insurance can provide the liquidity needed to execute a buy-sell agreement, ensuring a smooth ownership transition and protecting both the business and family members involved.
Additional Benefits
Beyond providing financial protection, Key Person Life Insurance can:
- Improve the company’s credit profile with lenders
- Provide accessible cash value (if using permanent insurance)
- Fund a buy-sell agreement or ownership transition
- Support deferred compensation or supplemental retirement benefits for the employee
The Bottom Line
Key Person Life Insurance is a simple, effective strategy to protect a business from the financial fallout of losing a vital employee or partner. It ensures stability, preserves confidence with clients and creditors, and provides the resources needed to move forward in difficult times—including ensuring the continuity of ownership and control among surviving partners.
Hamelburg Law, LLC is grateful to Gerald (Jerry) Scheinman, MD for guest authoring this important blog on Key Person Life Insurance. Hamelburg Law, LLC works closely with financial advisors and insurance specialists like Jerry Scheinman to devise strategies and draft documents that provide important protection to businesses, their owners, and their families. Jerry’s information follows.
Gerald (Jerry) Scheinman, MD
Jerry Scheinman is a Financial Advisor and Insurance Specialist at BluePoint Financial. Before joining BluePoint, he worked as a physician for 31 years. He also helped found one of the first comprehensive pain centers in the Washington, D.C. area.
BluePoint Financial
6901 Rockledge Drive, Suite 710
Bethesda, MD 20817
Office: (301) 214-6790
Email: jerry@bluepoint1.com
https://www.bluepoint1.com/team-members/jerry-scheinman
Jerry Scheinman is a Registered Representative of NYLIFE Securities LLC, Member FINRA/SIPC, a licensed insurance agency, and a wholly-owned subsidiary of New York Life Insurance Company. He is also a Financial Adviser with Eagle Strategies LLC, a Registered Investment Adviser, and a wholly-owned subsidiary of New York Life Insurance Company. BLUEPOINT FINANCIAL, LLC is not owned or operated by NYLIFE Securities LLC or its affiliates.
