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The Best Key Person Insurance Policies

Every business strives to hire outstanding and hardworking personnel, and these standout employees can become essential to the company’s daily operations and profitability, especially when they are co-owners, members of the senior leadership team, or key salespeople. However, what happens if one of these essential employees unexpectedly passes away or becomes disabled?

Key person insurance, also known as key man or key employee insurance, is a powerful tool that can protect businesses in the event of the unforeseen loss of a crucial employee or co-owner. This guide will help you understand everything you need to know about key person insurance and determine if your business needs it. We also provide our recommendations for the best key person insurance providers, including these top choices:

Key Person Insurance Basics

According to the Insurance Information Institute, a large majority of small businesses in the U.S. economy-which account for over 99% of firms-report being highly dependent on one or two key employees. However, only 22% of these businesses have key person insurance policies in place.

While the loss of a key person can disproportionately impact small businesses, it can also affect companies of any size. If you don’t have a plan in place for such an event at your business, key person insurance may be a practical solution.

What Is Key Person Insurance & How Does It Work? 

Key person insurance is a type of life insurance policy taken out on an essential employee without whom a business would struggle to continue its operations. This policy provides a cash payout to the business, which can be vital for surviving the period following the loss of a key employee. The policy allows the remaining leadership time to make a plan, which may include restructuring or filling the empty role.

A key person is an employee who is crucial to a business’s financial success. This is often a high-level manager, senior leadership team member, or top salesperson. They may be deemed essential due to their specialized or rare skill set, valuable client network, key operational knowledge, or other responsibilities that would be difficult to replace. If this person were to die, the company’s revenues would likely suffer. For example, a key person who is a manager may have been responsible for important decision-making for the company, while a key person who is a top salesperson may have generated significant revenue and managed important client relationships.

To obtain key person insurance, the business must first identify the key employee who will be the insured party. The business then selects a life insurance policy and pays the premiums to the insurance provider. Like other types of insurance, key person insurance policies may have different premium payment schedules. Some may offer monthly payments, while others have annual payment schedules. The premium cost will depend on the amount of coverage needed, risk factors, and the type of life insurance policy chosen. We will discuss these factors in more detail below.

If the key employee dies or becomes disabled, the insurance provider pays the death benefit or disability benefit to the business, which is the policyholder and beneficiary of the policy. This payout is the primary purpose of this type of policy, as with other life insurance policies. There is no standard method for determining the required benefit amount for a business. This will vary depending on the business’s budget, ability to continue operations, and the likelihood of finding a replacement in a timely manner.

Key person insurance can be an important risk management tool for businesses of all sizes, but it is especially useful for small businesses that may have a more limited financial cushion to absorb the impact of a key employee’s loss.

What Is the Purpose of Key Person Insurance?

As a business owner, minimizing risk is crucial for long-term success. However, many business owners fail to consider how the premature death of a key employee could affect their business. Key person insurance is a necessary risk management strategy that protects against this type of sudden loss.

The payout from key man insurance can be used for a variety of purposes, depending on the specific needs of the business. Some common uses include:

  • Covering immediate financial losses: The payout can be used to compensate for lost income and cover the business’s usual operating expenses while the business adjusts to the loss of the key employee.
  • Finding and training a replacement: The payout can be used to cover the costs of recruiting and training a new key employee or to hire temporary staff to fill the gap.
  • Restructuring the business: The payout can be used to fund restructuring or reorganization efforts to adapt to the loss of the key employee.
  • Paying off debts: The payout can be used to pay off debts or other obligations that the business may have incurred.

Overall, the specific use of the key man insurance payout will depend on the needs and goals of the business and the circumstances surrounding the loss of the key employee.

Key Person Insurance vs. Buy-Sell Agreement

As discussed above, key person insurance provides financial protection for a business in the event that one of its key members prematurely passes away or becomes disabled. A “key person” is often an owner of the business, but they do not necessarily have to be. They may be any employee who materially impacts the financial success of the business, such as a CEO or other high-level executive. The benefits paid out by key person insurance policies are usually used to address the business’s day-to-day operations, including replacing lost income, covering daily operating expenses, and hiring and training a replacement employee.

In contrast, buy-sell agreements dictate how an owner’s shares would be bought and redistributed among the remaining owners in the event of death or disability. These agreements only apply to the business owners and their estates. While buy-sell agreements are often accompanied by and funded by a life insurance policy, they do not provide funds that would be used to cover normal business operations. Instead, the funds provided by the life insurance policy in conjunction with a buy-sell agreement are used to purchase the shares of the deceased partner.

Both key person insurance and buy-sell agreements can be important tools for businesses to plan for the unexpected and ensure the continuity of the company. However, they serve different purposes and address different risks. Key man insurance is intended to protect the company from the financial impact of the loss of a key employee, while a buy-sell agreement is intended to ensure that the ownership of the company is transferred smoothly in the event of a change in ownership.

Who Needs Key Person Coverage?

Key man insurance is typically used by businesses that would suffer financially if a key employee were to die or become disabled. This type of insurance can be beneficial for businesses of all sizes, but it is especially useful for small businesses that may be more vulnerable to the financial impact of a key employee’s loss. In contrast to small businesses-which tend to have fewer financial resources and be highly dependent on a smaller number of people-larger organizations typically have more cash savings, redundant job responsibilities, and well-outlined succession plans to maintain business continuity.

Certain industries and business models may also benefit more from key person insurance. For example, a business whose reputation is tied to the key person’s identity or persona may need key person insurance to protect against the potential damage to their brand. Similarly, a business seeking or in the process of acquiring outside financing-like a startup-may need key person insurance to ensure that the financing is not withdrawn in the event of the key person’s death or disability. In some cases, key person insurance may be explicitly stipulated as a term of the financing package.

Overall, businesses that rely heavily on the expertise, leadership, or contributions of a few key employees may want to consider purchasing key person insurance to protect against the financial impact of their loss.

Types of Key Person Insurance Policies

There are several different types of key person insurance policies available. Below, we’ve outlined the most common policy types that you are likely to encounter when comparing options.

Key Person Term Life Insurance

This is a type of term life insurance policy that is typically the most affordable option for key person insurance. Premiums are paid on a set schedule, and the policy pays out only if the insured dies during the term of the policy. If the insured does not die during the term of the policy, the policy does not pay out any benefits. Key man term life policies can be renewed at the end of the term; however, the renewal premiums will likely be higher due to the increased risk associated with the insured’s older age.

Key Person Permanent Life Insurance

Unlike term life policies, permanent life insurance provides lifelong coverage and a portion of the premium payment goes into a savings or investment account to build value. A permanent life insurance policy can be a good option for long-term employees or owners that are unlikely to leave the company, or if the company would like to offer the cash value of the policy as a benefit when the key employee leaves. The downside is that permanent life insurance policies are far more expensive than term policies.

There are several different types of permanent life insurance options to choose from:

  • Whole life insurance: In a whole life policy, premiums are collected on a set schedule just like term policies. However, some of the payments are placed into a savings account tied to the policy with a guaranteed rate of return. The account balance can be borrowed against in cases where cash is needed. Once established, the terms of whole life insurance policies usually can’t be adjusted.
  • Universal life insurance: Like whole life, universal life also includes a savings account component that holds a portion of the premium collected. However, unlike whole life policies, universal policies offer more flexibility with premiums and benefits, as these can be adjusted as the policyholder’s needs change over time.
  • Variable life insurance: Like any permanent life insurance policy, variable life policies provide lifelong coverage, but they include an investment account that can grow over time. However, it is riskier than other permanent life insurance options because investments can lose value.

Key Person Disability Insurance

While most key person insurance policies are written as life insurance policies covering the death of a key employee, some key person insurance policies also provide a payout when a key person becomes disabled.

Key Person Insurance Exclusions

Key person insurance policies, like other life insurance policies, may exclude certain causes of death or disability. Some common exclusions found in key person insurance policies include:

  • Dangerous activities: Key person insurance policies may exclude deaths or disabilities caused by participation in dangerous activities, such as skydiving or mountain climbing, if these activities are not disclosed to the insurance company at the time the policy is issued.
  • Suicide: Most life insurance policies exclude suicide as a covered cause of death, and key person insurance policies are no exception. However, the exclusion may only apply during the first few years of the policy, after which suicide may be covered.
  • Pre-existing conditions: Some key person insurance policies may exclude deaths or disabilities caused by pre-existing medical conditions that were not disclosed to the insurance company at the time the policy was issued.
  • Fraud or dishonesty: Insurance companies will not provide coverage if they discover evidence of fraud or dishonesty associated with the policy, application, or claim. 

It is important to carefully review the exclusions in a key person insurance policy to ensure that the policy provides the desired level of coverage. If you have any questions about the exclusions in a key person insurance policy, you should speak with an insurance agent or financial advisor.

Cost, Coverage Amounts & Tax Implications

When preparing to purchase key person insurance, there are several factors to consider that might impact the cost of your policy. We’ve outlined some of these factors below, in addition to considerations for how key person insurance will affect your business’s taxes.

How Much Does Key Person Insurance Cost? 

The cost of key person insurance can vary greatly depending on the risk and coverage amount associated with the person that you are insuring. Policies can cost as little as $100 per month for basic term life coverage to more than $1,000 per month for permanent life policies. Additionally, the premium cost may be divided differently depending on the provider, as some insurers offer monthly premiums while others require an annual premium payment. 

Determining the Right Amount of Coverage

Determining the right coverage amount for key person insurance can be a complex process, as it depends on several factors such as the financial health of the business, the role and responsibilities of the key person, and the potential financial impact of their absence. Here are some steps to help you determine the right coverage amount for key person insurance:

  • Evaluate the financial impact of the key person’s absence: Consider how the key person’s death would affect the business’s profits, expenses, debts, and overall financial stability.
  • Determine replacement costs: Consider the costs that the business would incur to recruit and train one or multiple employees to replace the key person.
  • Review the business’s current financial resources: Determine whether the business has enough financial resources, such as cash reserves or available credit, to cover the costs associated with the key person’s absence.
  • Consider the key person’s age and health: The older and less healthy the key person is, the more expensive the insurance policy will be.

While these questions will provide insight into the amount of coverage needed, they are not necessarily easy to answer. Because of this, insurance companies often use an income multiple to approximate the key person’s value to the firm. The multiple can range from 5 to 15 times the key person’s annual compensation, depending on the insurance company and the specific circumstances of the business.

For example, if the key person’s annual salary is $200,000 and the insurance company uses a multiple of 7, the business may be eligible for coverage of $1.4 million (7 x $200,000). All things equal, coverage amount will largely dictate the cost of the policy.

Other Factors Affecting Cost

Outside of the coverage amount selected, there are several factors that will impact the cost of key person insurance premiums, including:

  • Age: All things equal, younger people tend to have lower life insurance premiums because they are less likely to die during the policy term than older individuals.
  • Health: Employees who are in good health are typically offered lower insurance premiums because they face a lower mortality risk than individuals with health problems.
  • Occupation and industry: Dangerous or high-risk occupations-such as those in construction or manufacturing-may result in higher premiums because the policyholder is more likely to be involved in an accident on the job.
  • Lifestyle: Excessive alcohol consumption, smoking, drug use, and risky hobbies like extreme sports can all increase premiums because they increase the policyholder’s risk of death or disability.
  • Policy term length: Longer terms usually result in higher premiums since there is a greater risk of a claim the longer the policy remains in effect.
  • Policy type: As discussed above, different types of key man life insurance policies-such as term, whole, universal, etc.-will cost different amounts. Generally, term policies are the least expensive and most desirable option.

Is Key Person Insurance Tax Deductible?

Key person insurance premiums are usually not tax-deductible and must be made with post-tax dollars. This means that the Internal Revenue Service (IRS) does not allow businesses to deduct these premiums from their taxable income when calculating their taxes.

However, it’s important to note that the tax treatment of key person insurance may vary depending on the specific circumstances of the policy and the business. For example, C corporations may need to report information about the key person policy in their annual tax return and include any death benefit received in their alternative minimum tax (AMT) calculation.

In most cases, however, payouts from key person insurance policies are not subject to income taxes as long as certain conditions are met. However, it’s always a good idea to consult with a tax professional or refer to IRS guidelines for more information.

Comparing Key Man Insurance Policies

When comparing key person insurance policies offered by different providers, there are several important factors to consider, including the policy options, the premium amount and payment schedule, and the company’s reputation and financial standing. 

Policy Options & Riders

The first thing to look at when comparing insurers is whether they offer the type of key person insurance policy you are looking for. For the purposes of ensuring business continuity following the loss of a key individual, we recommend a term policy rather than a permanent policy. Key man term policies are less expensive than permanent policies and offer the coverage necessary to recover from losing a critical employee. However, if a permanent policy is more appealing, you will want to make sure the insurer offers the specific type of permanent policy you are looking for, such as whole life, variable life, or universal life.

Outside of policy types, specific policy features can vary widely across providers, so it’s important to look at the fine print and compare what each company offers within its policies. Riders, which are amendments to an insurance policy, can offer additional coverage, such as disability coverage for a key employee. Some companies may offer more rider options than others.

Financial Strength

When evaluating insurers for policies like key person insurance, which are meant to remain in effect for a long time, it is critical to consider the financial strength of the insurance company. You want to make sure that the insurer will be able to pay a claim when you need it most, and that the insurer is financially stable enough to stay in business for the duration of the policy.

There are several reliable financial strength rating providers that can give you an idea of the financial stability of an insurance company, including AM Best, Standard & Poor’s, and Moody’s. These ratings assess the ability of the company to weather financial difficulties and economic downturns while continuing to meet ongoing financial obligations. It is a good idea to evaluate a company’s financial strength using multiple sources, as each rating may consider different factors and one source may have information that another missed. This will give you a more well-rounded view of an insurer’s financial standing.

AM Best’s top ratings levels are: 

  • A+ or A++: Superior 
  • A or A -: Excellent

S&P’s top rating levels are: 

  • AAA: “Extremely strong capacity to meet financial commitments”
  • AA: “Very strong capacity to meet financial commitments” 
  • A: “Strong capacity to meet financial commitments, but somewhat susceptible to economic conditions and changes in circumstances.” 

Moody’s top rating levels are: 

  • Aaa: “Obligations are judged to be of the highest quality, with minimal risk” 
  • Aa: “Obligations are judged to be of high quality and are subject to low credit risk” 
  • A: “Obligations are considered upper-medium grade and are subject to low credit risk”

Customer Satisfaction

When it comes to choosing an insurance provider, the experience of other customers can be the most valuable insight into whether a provider is the right choice for you. The Better Business Bureau, J.D. Power, and the National Association of Insurance Commissioners (NAIC) Complaint Index are great sources for this information.

The Better Business Bureau (BBB) provides profiles of businesses in the United States, including insurance companies. On these profiles, you can see if the company is BBB accredited. This means that the company has consistently met the standards set by the BBB. The BBB also provides ratings for businesses and displays customer reviews and complaints. By checking the BBB profile of an insurance company, you can get a better understanding of its reputation and performance.

J.D. Power conducts customer satisfaction studies on different types of insurance, including group life insurance and individual life insurance, and uses the results to rank the top insurance companies in each sector. While they do not have a specific study on key person insurance, their other studies can give you an idea of what you can expect in terms of customer satisfaction with a particular insurance company.

The National Association of Insurance Commissioners (NAIC) Complaint Index provides information on the number of complaints received by an insurance company. The index compares the number of complaints to the size of the company and its market share to determine how the number of complaints compares to other companies. The statistics used in the index include:

  • The company’s share of total complaints
  • The company’s total number of complaints
  • The company’s share of total premiums written
  • The company’s annual premiums written

The NAIC Complaint Index is available for all types of insurance policies, including individual life insurance and group life insurance. This index can help you determine if an insurance company is receiving an unusual number of complaints, or a particularly low number of complaints.


The last thing a business should consider when comparing key person insurance policies is price. There can be significant variation in premiums across insurance companies, so it’s worth getting quotes from multiple providers. Additionally, some key person insurance policies have monthly premiums, while others have annual premiums. When comparing different providers, consider which payment schedule would be optimal for your business given its cash flow.

The Best Key Person Insurance Providers

Below, we have listed our choices for the best key person insurance companies in various categories, including the best overall, as well as the best for specific business types and policy types.

Mutual of Omaha (Best Overall) 

Best Key Person Insurance Overall

Mutual of Omaha offers a variety of insurance products in the U.S., including life, health, and accident insurance. They also offer key person insurance.


  • BBB accredited since 1940
  • Ranked #1 in J.D. Power’s 2022 Group Life Insurance Study
  • You can get a quote online or contact an agent
  • Offers term life insurance with a fixed premium and the option to convert to a permanent life insurance plan at any time


  • In most cases, Mutual of Omaha does not insure individuals over the age of 80

Mutual of Omaha was founded in 1909 as Mutual Benefit Health & Accident Association, selling health and accident insurance in Nebraska. Today, they offer insurance throughout the U.S. They recommend term life insurance for key person insurance customers, especially in cases where the key person is not likely to be a long-term or permanent employee of the company. Their term life insurance offers a fixed death benefit of $100,000 or more if the key employee passes away during the term of the policy. The term can range from 10 to 30 years, and the premium will not increase for the duration of the policy unless the policyholder chooses to extend the policy or convert it to a permanent policy, which are both options.

There are several indicators of Mutual of Omaha’s positive reputation among its customers. They have an NAIC Complaint Index of 0.65, which is a lower rate of complaints than expected in their market, with 59 complaints reported across all insurance types. For individual life insurance, they have only 5 reported complaints, and 1 reported complaint for group life insurance. Mutual of Omaha has been BBB accredited since 1940 and has an A+ rating.

Mutual of Omaha ranked #1 in J.D. Power’s 2022 U.S. Group Life Insurance Study, with an overall customer satisfaction index ranking of 817 out of 1,000, indicating that they offer one of the best customer service experiences for group life insurance products. They ranked 3rd overall in J.D. Power’s 2022 U.S. Individual Life Insurance Study, with a score of 801 out of 1,000.

In addition to their strong customer service indicators, Mutual of Omaha also has strong financial strength ratings. They are rated A+ by AM Best, which is their second-highest ranking and indicates a “superior ability to meet ongoing insurance obligations.” Standard & Poor’s awarded them an A+ rating, indicating a “strong capacity to meet financial commitments, but somewhat susceptible to economic conditions and changes in circumstances.” Moody’s rated Mutual of Omaha as A1, indicating that obligations are “upper-medium grade and subject to low credit risk.” These financial strength ratings provide assurance that Mutual of Omaha will fulfill its claims-paying obligations on your policy when needed.

Given their strong policy options and excellent reputation, we recommend Mutual of Omaha as the best overall option for key person insurance. Interested customers can get a quote online or contact a local Mutual of Omaha agent to explore options and help them through the process of purchasing key person insurance.

Lincoln Financial Group (Runner-Up) 

Runner-Up Best Key Person Insurance

Lincoln Financial Group offers financial and insurance services to help people and businesses plan for the future. Their products include life insurance, annuities, retirement plan services, and group protection. Key person insurance is among the life insurance products that they offer.


  • Riders available to cover chronic illness or disability
  • NAIC Complaint Indexes reflect fewer complaints than average 
  • BBB accredited since 1979 with an A+ rating


  • Policies tend to be more expensive than average

Lincoln Financial Group offers various policy options for key person insurance, including both term and permanent policies. Among its permanent policy options, Lincoln WealthPreserve 2 Indexed Universal Life (IUL) is a popular choice. This policy offers a guaranteed death benefit for up to 40 years or until the insured reaches age 90, whichever comes first. It also allows you to invest premium payments in a choice of five indexed accounts that offer protections from market losses. You can make withdrawals or take loans against the account for business needs, but be aware that this can reduce the policy value and death benefit if there is not enough in the account to cover the payout. Lincoln Financial also offers accelerated benefit riders, including chronic illness coverage, which protects your business if a key employee contracts a chronic illness that prevents them from working.

Lincoln has strong customer satisfaction ratings from multiple sources. Most notably, the company ranked 2nd in J.D. Power’s 2022 Group Life Insurance Study, with an overall customer satisfaction index ranking of 815 out of 1000, indicating strong customer satisfaction with its group life insurance products. Additionally, both of its affiliates-Lincoln Life and Annuity and Lincoln National Life Insurance-have low rates of complaints according to the NAIC Complaint Index. Lincoln Life and Annuity has an NAIC Complaint Index of 0.05, which is a much lower rate of complaints than expected in the market. Likewise, Lincoln National Life Insurance has an NAIC complaint index of 0.08, also performing far better than average. 

Regarding financial stability, Lincoln Financial Group is rated A by AM Best, their 3rd highest ranking, indicating an “excellent ability to meet ongoing insurance obligations.” Standard & Poor’s awarded them an A+ rating, indicating a “strong capacity to meet financial commitments, but somewhat susceptible to economic conditions and changes in circumstances.” Lastly, Moody’s rated Lincoln Financial Group as A1, indicating that obligations are “upper-medium grade and subject to low credit risk.”

Because of their strong financial ratings, low rate of customer complaints, and excellent policy options, we recommend Lincoln Financial as one of the best options for key person insurance.

AIG Direct (Best Key Person Insurance for Startups) 

Best for Startups

AIG Direct offers key person insurance for both small and large businesses, and they offer a variety of life insurance plans, including term life, whole life, universal life, and more. Customers can also access information and get a quote online, rather than having to work with a local agent.


  • More affordable than competing providers
  • Newer insurance company backed by the experience and financial strength of AIG, a well-established company 
  • Innovative company that provides an excellent online experience


  • NAIC Complaint Index of 3.17 for individual life insurance, a much higher rate of complaints than average

AIG Direct is a subsidiary of American General Life Insurance Company, which is itself a subsidiary of AIG. AIG Direct is focused on providing online life insurance products-including key person insurance-to consumers and has been operating since 1995. The company is known for its innovative approach to the insurance industry and its use of online technology to make the insurance buying process more convenient and efficient for customers.

AIG Direct places emphasis on the value of key person insurance for small business owners, who are often more heavily impacted by the loss of an owner or key employee as compared to a larger business. AIG Direct offers both term and permanent key person insurance options, and their term coverage is up to 45% more affordable than other carriers. You can request a free quote online to find the right protection for your business. 

One potential drawback of using AIG Direct for key person insurance is its mixed customer satisfaction ratings. According to the NAIC, its parent company American General Life Insurance has an overall Complaint Index of 0.45, which is better than the average for their market. However, in the individual life insurance category, their Complaint Index is 3.17, which indicates a much higher rate of complaints. Likewise, AIG has received mixed results in J.D. Power’s recent studies, ranking low in its Individual Life Insurance Study and average in the Individual Annuity Study. Despite this, AIG maintains a strong financial reputation, with an A from AM Best, A+ from Standard & Poor’s, and A2 from Moody’s. 

Due to their lower price point and convenient online experience, we recommend AIG Direct as the best option for startups looking for a simple yet innovative solution to their key person insurance needs. To get more information about key person insurance options through AIG Direct, simply get a free quote on their website.

State Farm (Best Key Person Insurance for Small Businesses) 

Best for Small Businesses

While State Farm is an insurance company best known for its auto insurance, they also offer a variety of insurance products for both individuals and businesses, including key person insurance.


  • #1 Customer Satisfaction Ranking on J.D. Power’s Individual Life Insurance Study for three consecutive years
  • Awarded an A++ financial strength rating by AM Best, their highest rating 
  • Personalized service provided by local agents


  • Can’t purchase policies online or through a broker

State Farm is a well-established life insurance company that has been offering life insurance products for over 80 years. They currently hold over 7.8 million life insurance and annuity policies, including key man insurance. One of the unique features of State Farm is that their insurance products are only sold through a network of individual agents, rather than online or through brokers. If you want to get more information about the company’s key person insurance offerings, you will need to find an agent in your area. You can use the State Farm website to search for agents in your area or call the provided number to get a quote. Once you get in touch with a local agent, they can provide you with the most up-to-date information on key person policy options, riders, and premiums. 

Most customers, especially small business clients, find that working with a dedicated State Farm agent is a positive experience. However, it is important to note that this model may not be convenient for everyone, as it requires you to physically meet with or call an agent to get more information or a quote.

In large part due to its network of dedicated agents, State Farm stands out from the competition with truly excellent customer service. The company recently earned the highest ranking in J.D. Power’s 2022 Individual Life Insurance Study, with a score of 839 out of 1000. This marks the third consecutive year that State Farm has received the best overall Customer Satisfaction Index Rating. Additionally, State Farm Life Insurance Company, the affiliate that issues life insurance and key person insurance policies, has a very low NAIC complaint index of 0.2, indicating a low rate of complaints given its market share. Overall, these scores suggest that State Farm provides some of the best customer service in the industry.

State Farm has strong financial strength ratings from multiple sources. According to AM Best, the company is rated A++ as of 2021, which is their top ranking and reflects a “superior ability to meet ongoing insurance obligations.” Standard & Poor’s also awarded State Farm an AA rating, indicating a “very strong capacity to meet financial commitments.” These ratings suggest that State Farm has a strong financial foundation and is well-equipped to meet its financial obligations.

Because of their #1 customer satisfaction ranking by J.D. Power, strong financial ratings, and personalized agent-based service model, we recommend State Farm as the best provider of key person insurance for small businesses.

Nationwide (Best for Variable Life Key Person Insurance) 

Best Variable Life Key Person Insurance

Nationwide is a large insurance and financial services company, offering both individual and business insurance products, including key person insurance for businesses.


  • Earned A+ financial strength rating from AM Best, their 2nd highest ranking 
  • BBB accredited since 1955 with an A+ BBB rating 
  • Their corporate VUL policy allows you to choose from 140 investment funds


  • Pushes permanent (rather than term) key person policies

Nationwide began in 1926 as Farm Bureau Mutual Automobile Insurance Company. They have been offering life insurance products since 1935 when they acquired Life Insurance Company of America. 

Nationwide offers key person insurance through their Nationwide Innovator Corporate Variable Universal Life (VUL) policy. Premium payments for variable life insurance policies are placed into an investment account. This gives your payments the potential to grow in value more quickly than other types of permanent life insurance. However, this type of life insurance can be a risky option, as your investments can lose value, too. Nationwide provides a list of 140 investment funds to choose from, allowing you to decide where your money gets invested and control the risk level of your investments.

Nationwide allows the cash value of your policy to be used by your business before the payment of a death benefit in certain circumstances. You can access the cash value through withdrawals or by taking out a loan against the account. These options can be used to fund business growth opportunities or retirement benefits, but it’s important to note that making withdrawals or taking out loans will reduce the death benefit available to your company if a claim needs to be made in the future. If you plan on using the cash value in this way, it’s recommended to replenish it to maintain the full value of the death benefit. 

One potential drawback of using Nationwide for key person insurance is that they tend to promote permanent life insurance policies, such as variable universal life, rather than term life insurance. It’s generally recommended for businesses to choose term life insurance for key person coverage unless they have a specific reason not to. However, customers who have chosen Nationwide for key person insurance have generally had positive experiences with the company. Nationwide has consistently scored well in J.D. Power’s life insurance studies and has a very low (favorable) NAIC complaint index for its life insurance products. Nationwide similarly receives strong financial ratings from AM Best, S&P, and Moody’s.

A combination of excellent customer service and a strong policy offering makes Nationwide our pick as having the best variable life key person insurance.

Frequently Asked Questions

What is a key person insurance policy?

Key person insurance is a type of coverage designed to protect businesses against the financial impact that may arise as a result of losing a key employee to disability or death. Key employees are typically owners, senior leaders, or top salespeople who play a critical role in the business. In the event that a key employee dies or becomes disabled, the business can file a claim to receive a payout that helps to compensate for the losses caused by the loss of the key employee. This payout can be used to cover a range of expenses, including lost profits, recruitment and training costs, and any other costs related to the loss of the key employee.

How is key person insurance different from other life insurance?

Key person insurance is a specialized type of life insurance coverage that is designed specifically to protect businesses against the financial consequences of losing key employees. It differs from standard life insurance in several ways. Whereas the primary purpose of most life insurance is to provide financial security for the policyholder’s family, the main purpose of key person insurance is to protect the business. Because of this, the beneficiary and policyholder of key person insurance is the business, rather than an individual or a group of individuals. Furthermore, the coverage amount for key person insurance is typically based on the financial impact that the loss of the key employee would have on the business, rather than on the employee’s personal financial needs or those of their family.

What is the purpose of key man insurance?

The purpose of key man insurance is to cover income losses following the death or disability of an employee essential to a business’s success. The payout primary covers lost income due to business interruption, as well as recruiting and training costs related to replacing the key employee.

Who needs key man insurance?

Any business that is reliant on one or a small number of essential employees for the financial success and continuity of the business should consider key man insurance. This is true for many small businesses with a small workforce or an owner who acts as the face of the company. Larger businesses may also require key man insurance if they rely on a top salesperson for revenue, or they employ a hard-to-replace leader that provides important direction for the company.

Is key man insurance expensive?

The cost of key person insurance can vary significantly based on a range of factors, including the age and health of the insured employee, as well as the industry in which they work. For example, insuring an older employee with pre-existing health conditions may be more expensive than insuring a younger, healthier employee. Similarly, insuring a key employee who works in a high-risk industry, such as construction or manufacturing, may be more expensive due to the increased likelihood of on-the-job injuries or illnesses. Other factors that can affect the cost of key person insurance include the employee’s job duties, the size of the business, and the coverage amount requested.

Is key man insurance tax deductible?

In general, key person insurance is not tax-deductible as a business expense. This means that businesses must pay the policy premiums using post-tax dollars. However, death benefits from key person insurance policies are generally not subject to income taxes, regardless of whether the business is a corporation or some other type of entity. C corporations are an exception to this rule, as they must report the key person insurance policy and any death benefits received in their calculation of the alternative minimum tax (AMT). It is important for businesses to understand these tax implications when considering key person insurance, as they can affect the overall cost and value of the coverage.

Does key person insurance cover the disability of a key employee?

Key employee disability coverage is not typically included automatically in key person insurance policies, but it can often be added as a rider or an optional addition to an existing policy. This is a good option for businesses that want to protect themselves against the financial impact of losing a key employee due to disability, as the long-term disability of a key employee can have a similar impact on a business, depending on the employee’s role and the nature of their injury or illness.

Is term life insurance or permanent life insurance better for a key person insurance policy?

The decision between term life insurance and permanent life insurance for a key person insurance policy will depend on the specific needs and circumstances of the business. For most businesses though, a term policy is the better option given its simplicity and affordability. Key person term policies provide coverage for a specific period of time, usually between 5 and 30 years. They are generally the most affordable option for key person insurance, as the premiums are lower than those for permanent policies. However, term insurance does not build cash value and coverage ends when the policy term expires.


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