Business Planning and Key Man Insurance

Written by KPI

Key Man Insurance is an Essential Component of a Strong Business Plan

Whether you have been in business for several years or if you are looking for capital investment to fund a start-up, the advantages to having a strong business plan cannot be understated. Your business plan is the “blueprint” or “road map” to ultimate success and must include a comprehensive analysis of your organizations strengths, weaknesses, opportunities and threats. This includes careful consideration of key man insurance planning.

Key man insurance planningThe basic elements of a sound business plan include:

  • Executive Summary
  • Market Analysis
  • Company Description
  • Organizational Hierarchy
  • Financial and Funding Strategy
  • Management Philosophy
  • Marketing Strategy
  • Product and Services Descriptions
  • Insurance and Risk Management Strategies

Business Plans, Risk Management and Key Man Insurance Planning

One of the most often overlooked risk management strategies that should be included in any business plan is key man insurance. Every good business has a few “key” people that are essential to the successful operations and ultimate profitability of the company. A proper business plan should include key man insurance planning which dictates that these key executives and employees, the ones driving the revenue for the business, should be protected. When you stop to think about aren’t your key people your real assets? It is only prudent to protect these key people.

Key man insurance planning is the process of evaluating and identifying the most important individuals to your company’s success. Once identified, key man life insurance and key man disability insurance should be purchased to protect your company in the unfortunate event of the death or disability of one of these key employees. By purchasing key man life and disability insurance on the lives of your key people, with your company as the beneficiary, you can effectively protect against the threat of the loss of a major bottom line contributor. With key man insurance in place, if one of your key employees goes down, your business will receive the proceeds of the policy and can sustain operations until contingencies plans are finalized.

Key man insurance is an essential component to any effective business plan

A sound business plan should address “key man” risk

Start-up Companies and Key Man Insurance

Very few start-up businesses can get off the ground without some type of cash investment either from the actual business owners, a lending institution such as the Small Business Administration (SBA) or an outside investor. Lenders, like the SBA, normally require that key man insurance be in effect on the borrower(s) prior to the closing of most loans. The SBA realizes that insuring the key individuals who are essential to the operations and finances of the company significantly decreases the risk of a “bad loan”. Furthermore, having key man insurance in effect shows potential outside investors that your company is responsible and prudent with respect to risk management as well as business planning. Showing corporate responsibility and preparedness may increase your likelihood of outside investment opportunities.


Effective business planning is crucial to companies of all sizes and every organization should have its own comprehensive business plan that is continuously reviewed and updated. The business planning process is ever-evolving and can be affected by a number of variables such as the economy, market conditions, new opportunities and competition.

One of the main components of any business plan is key man insurance planning which effectively addresses the loss of a key person and the impact on successful operations of your overall business strategy. A chief threat for your company would be the loss of a key sales person or executive. Just ask yourself. “What would happen to your company if you lost your chief rainmaker?” Proper risk management mitigates this risk of loss by purchasing key man life and disability on your key people. No matter how solid your business plan may be, it isn’t complete or able to be executed to the highest level without the protection of key man insurance.


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