Key man insurance is a life insurance policy purchased by a business that protects it from losses that may be incurred upon the death of an owner or key executive. The proceeds from the policy give the business time to find a replacement person or to adopt a different strategy.
The firm is the beneficiary of this policy, and pays all premiums. Lenders sometimes require a small business to obtain key man insurance on selected executives, so that the entity can still pay back loans if the person dies. When key man insurance is required in this manner, the lender may be named as the beneficiary of the policy.