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Lost in the terminology insurance companies use? Our quick-reference insurance glossary provides easy-to-understand definitions and examples of the terms insurance professionals use.

Key Person Insurance

Key Person Insurance (or as it is formerly known: key man insurance) refers to the insurance policy on the life or health of a person (generally a key employee, partner or owner of a business) whose death or disability could hinder the successful operation of the business and cause financial losses.

For small businesses the key person is usually the owner or sometimes one or two key employees. For larger companies this could be an executive, a shareholder, a chief scientist, etc.

Once the company receives insurance proceeds as specified on the insurance policy, it can use it to offset the costs of recruiting a successor, to cover expenses until it hires a replacement person, to pay off debts and close the business, to buy out the business from the family of the insured.

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