Key Person Insurance for Startups
Written by Aparna Devalla, CPA
Curated by Rubric Financial
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What Key Person Insurance Is
- Key person insurance is a life and/or disability policy taken out by the company on individuals whose loss would cause significant financial harm to the business
- The company owns the policy, pays the premiums, and is the beneficiary; the payout provides a financial cushion to recruit a replacement, cover lost revenue, or satisfy investor requirements
- Typically covers the CEO, CTO, or any individual whose departure would materially impact the company's ability to operate, raise capital, or retain customers
- Many VC term sheets require key person insurance as a closing condition. Investors want protection against the loss of founders they backed
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