Key person insurance: what happens if your business can’t run without you
Key person insurance is a policy the company owns on an owner or employee it depends on, so the business has cash to get through their death or disability. Most owner-run companies are built around one person, and very few have planned for the weeks when that person suddenly can’t work.
By Greg Garone, CEPA® · Published by Morrowgate Private Wealth · Last reviewed October 2026
Key person gap calculator
Six numbers. Rough estimates are fine. Nothing is saved or sent.The company could need about
$720K of lost profit while $4.8M of revenue is at risk, plus $1.5M of loans tied to your guarantee.
That’s the cushion your family and team would be running on while someone figures out how to run the company without you.
Many loan agreements let the lender demand repayment or tighten terms when a guarantor dies or can’t work. Ask your banker what yours says.
Illustration only. Assumes revenue that depends on you stops for the period you entered and returns after. Real losses can be larger or smaller.
A stroke on a Tuesday
Linda owns a commercial printing company outside Rochester with $8M in revenue. She runs sales, signs every check and is the only name on the bank accounts.
At 58 she has a stroke. She survives, but she’s out for most of a year. Her will is current. Her life insurance is in place. Neither does anything, because she’s alive.
Payroll is due Friday and no one can sign. Two of her largest customers, who bought from Linda personally, start getting quotes elsewhere. The bank, which holds her personal guarantee on a $1.5M equipment loan, asks who is running the company.
Who could sign on Monday?
Four questions about the weeks after an accident or illness.Answer the questions to see what someone would run into if you couldn’t act.
Three ways owner-run companies get caught
Life coverage, no disability coverage
Most planning assumes death. A long illness or injury keeps the owner’s salary, decisions and guarantees in place with no one able to act on them.
One signer, one password list
The owner is the only authorized signer and the only person who knows where everything is. The business stalls before anyone gets to the will.
The power of attorney doesn’t reach the business
A general power of attorney may not cover LLC interests or shares, and the operating agreement may not let an agent act in the owner’s place.
What usually fixes it
- Key person life and disability coverage sized to the profit at risk, not a round number
- A second authorized signer on business accounts
- A power of attorney that names your business interests, matched to your operating agreement
- A one-page “if I’m out” memo: who runs what, where the passwords and documents are
Questions for your attorney
- Does my power of attorney let my agent vote and manage my business interest?
- What does our operating agreement say happens if I’m incapacitated?
- What do my loan agreements say happens if I die or can’t work?
Key person insurance questions
What is key person insurance?
A life or disability policy the company owns on an owner or employee it depends on. The company pays the premiums and receives the benefit, which it can use to cover lost profit, recruit a replacement or reassure lenders.
Who owns the policy and who gets paid?
The company owns the policy and is the beneficiary. That’s what separates it from personal life insurance, which pays your family.
Are key person insurance premiums tax-deductible?
Generally no. In exchange, the death benefit is generally received income-tax-free, as long as the employer-owned life insurance notice and consent rules were followed before the policy was issued. Confirm with your CPA.
How much key person insurance do I need?
Common approaches are a multiple of the person’s compensation or an estimate of the profit that would be lost while the company recovers, which is what the calculator above uses. Insurers set their own limits.
Does key person insurance cover disability?
Only if you buy a disability policy. Many owners have life coverage and nothing for a long illness or injury, which is often the harder event for a company to get through.
Find out what the company would need without you
A 30-minute video call with Morrowgate Private Wealth’s Greg Garone, CEPA®, wherever you are in the U.S. We’ll look at what depends on you, what coverage you have, and who could act if you couldn’t, then work with your attorney on anything that needs changing.
Greg doesn’t sell insurance. When coverage is needed, we refer you to a licensed insurance professional and coordinate the rest.
Go deeper on WealthPlannerPro: Life insurance needs calculator · Long-term care cost calculator