Key Person Insurance Calculator
Size corporate key man life insurance coverage to protect enterprise value, satisfy commercial loan covenants, and fund executive replacement search costs.
Executive Economic Impact & Replacement
Quantify financial disruption and size key person corporate life insurance.
Protecting Enterprise Continuity with Key Person Insurance
Key person insurance (frequently called key man insurance) is a corporate-owned life and disability insurance policy taken out on indispensable founders, top sales executives, or lead technical architects whose sudden death or disability would inflict severe financial trauma on the enterprise. The proceeds provide immediate tax-free liquidity to recruit executive successors, offset disrupted customer accounts, and satisfy bank debt covenants.
Key Business & Coverage Features
Multiple Sizing Valuation Methodologies
Calculates required coverage using Earnings Multiples (5x-10x salary), Revenue Contribution Percentage, or Replacement Cost Models.
Commercial Debt & Covenant Collateralization
Incorporates outstanding SBA 7(a) or commercial bank loan balances requiring mandatory assignment of life insurance.
Executive Search & Signing Bonus Modeling
Allocates dedicated budget for retained executive headhunter fees and competitive market recruitment signing incentives.
Disrupted Revenue Cushion Sizing
Simulates 6 to 18-month sales runway stabilization while a replacement executive builds enterprise pipeline.
Term vs Permanent Sizing Guidance
Benchmarks 10-year level term policies against permanent whole/universal life policies with corporate cash surrender value accumulation.
Bank Underwriting Deck Summary
One-click export ready for commercial loan officers, angel syndicates, and investor boards.
Practical Corporate Scenarios
- ✓SBA Loan Borrowers
Satisfy mandatory SBA 7(a) loan life insurance collateral assignment requirements before loan disbursement.
- ✓Venture & Private Equity Backed Startups
Fulfill investor covenants protecting the business against sudden loss of technical co-founders or primary inventors.
- ✓B2B Professional Services Partnerships
Protect law firms, medical groups, and engineering consultancies against sudden loss of primary rainmakers.
- ✓Family Businesses & Succession Planning
Fund interim operational leadership while junior family members transition into executive ownership.
Frequently Asked Questions
What is key person insurance?
Key person insurance is a life and/or disability insurance policy purchased by a business on the life of an essential executive. The company pays the premiums, owns the policy, and is the sole beneficiary.
How much key person insurance does a business need?
Common rules of thumb include 5 to 10 times the key executive's annual compensation, or the key person's direct annual revenue contribution multiplied by the years needed to recruit a successor (typically 1 to 3 years), plus any debt collateral requirements.
Are key person insurance premiums tax-deductible?
Generally, no. Under IRC Section 264(a)(1), when the company is directly or indirectly a beneficiary of the policy, premium payments are not tax-deductible as ordinary business expenses. In exchange, the death benefit payout is received income-tax-free.
Does the SBA require key person insurance on 7(a) loans?
Yes, the Small Business Administration frequently mandates key person life insurance for principal owners when loan repayment is heavily dependent on the management and operational skills of the primary borrower.
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