What is Key-Person Insurance?
Nexa Consultancy | Startup & Finance Glossary
Key-Person Insurance is a life insurance policy that a company purchases on the life of a crucial executive or employee—often a founder. The company is the beneficiary of the policy and pays the premiums. In the event of the key person's unexpected death, the insurance payout provides the company with cash to manage the transition, hire a replacement, or deal with the financial disruption.
For Startups: Many venture capital investors insist that a startup takes out key-person insurance on its founders as a condition of their investment. It is a risk mitigation tool that protects the investor's capital from being wiped out by the loss of a critical founder whose vision and leadership are essential to the company's success.
Example: A two-founder startup raises a seed round. The investors require the company to take out a ₹2 Crore key-person life insurance policy on each founder.