Our key man insurance underwriting guide can provide the criteria insurance companies use to determine your health class.
Because each company has its own specific underwriting guidelines, the choice of insurance policies will be affected by the way each respective company evaluates your health. This guide will help you understand how to qualify for key man insurance from a medical standpoint. You should also consider reading the article, “Financially Underwriting Keyperson Insurance”.
Key Takeaways of Complete Underwriting Guide For Key Man Insurance Policies
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Key man insurance underwriting relies on categorizing applicants into health classes, such as Preferred Best Non-Smoker, Preferred Non-Smoker, Standard Plus Non-Smoker, and Standard Non-Smoker, each with specific health criteria.
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Insurers assess a wide range of medical conditions, including cardiovascular disease, cancer, diabetes, respiratory disorders, and mental health, to determine eligibility and pricing.
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Tobacco and nicotine use significantly impact underwriting. Some alternate tobacco users, such as occasional cigar smokers, may still qualify for non-tobacco rates.
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Height and weight guidelines are used to determine eligibility for various health classes, with stricter limits for higher classes like Preferred Best.
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The amount of key man insurance coverage is determined by factors like the insured’s income, role, contribution to the business, and company financials.
Determining Your Health Class
This chart will help you identify which rate class you may obtain based on your specific health information. This is a general guide for insurance underwriting risk assessment only. Each company has its own underwriting guidelines.
| Category | Preferred Best Non-Smoker | Preferred Non- Smoker | Standard Plus Non-Smoker | Standard Non-Smoker |
| Physical / Mental Impairments and Medical History | NO history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. | NO history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. | Some minor history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. | Some minor history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. |
| Use of Tobacco or Nicotine Products | No use within last 60 months. | No use within last 36 months. | No use within last 12 months. | No use within last 12 months. |
| Blood Pressure | 140/80 or less. No current treatment. Prior treatment OK, if 2+ years | Current or past treatment OK. 145/90 | Current or past treatment OK. 152/90 | Current or past treatment OK. 156/92 |
| Cholesterols Readings and Ratio | May not exceed 220 or ratio of 5.0, with or without treatment. | May not exceed 250 or ratio of 6.0, with or without treatment | May not exceed 280 or ratio of 7.0, with or without treatment | May not exceed 300 or ratio of 8.0, with or without treatment |
| Cancer | Only some skin cancers | Only some skin cancers | Depends on type and date of onset | Depends on type and date of onset. |
| Family Medical History | No cardiovascular disease or cancer in either parent or siblings before age 60 | No cardiovascular or cancer death in either parent. | No cardiovascular or cancer death in both parents | No cardiovascular death in both parents. |
| Aviation | Commercial airline pilots accepted. Private pilots with exclusion. | Commercial airline pilots accepted. Private pilots with exclusion. | Commercial airline pilots accepted. Private pilots with exclusion or flat extra. | Commercial airline pilots accepted. Private pilots with exclusion or flat extra. |
| Hazardous Activities (Sky Diving, Hang Gliding, Rock Climbing, Scuba Diving, ect) | Available if no flat extra involved. | May include flat extra. | May include flat extra. | May include flat extra |
| Personal Driving History | No more than 2 moving violations in last 3 years and No DWI, DUI, reckless driving, or suspension in last 5 years. | No more than 2 moving violations in last 3 years and No DWI, DUI, reckless driving, or suspension in last 5 years. | No more than 3 moving violations in last 3 years and No DWI,DUI, reckless driving, or suspension in last 3 years. | No more than 3 moving violations in last 3 years and No DWI, DUI, reckless driving, or suspension in last 3 years. |
| Substance or Alcohol Abuse | No abuse. | No abuse. | No abuse in last 10 years. | No abuse in last 7 years. |
| Residency/Citizenship | US citizen, resident for 3 years, must hold permanent Visa or Green Card. | US citizen, resident for 3 years, must hold permanent Visa or Green Card. | US citizen, resident for 2 years, must hold permanent Visa or Green Card. | US citizen, resident for 2 years, must hold permanent Visa or Green Card. |
Height and Weight Chart (Male and Female)
The requirements for height and weight will vary among insurance companies. The chart below should be considered the maximum allowed to qualify for life insurance.
| Height | Best Class/ Preferred Plus | Preferred | Standard Plus | Standard |
| 5′ 0″ | 144 | 158 | 166 | 172 |
| 5′ 1″ | 148 | 163 | 172 | 178 |
| 5′ 2″ | 153 | 168 | 175 | 183 |
| 5′ 3″ | 158 | 174 | 182 | 190 |
| 5′ 4″ | 163 | 179 | 188 | 195 |
| 5′ 5″ | 168 | 185 | 194 | 202 |
| 5′ 6″ | 174 | 191 | 200 | 208 |
| 5′ 7″ | 179 | 197 | 206 | 215 |
| 5′ 8″ | 185 | 203 | 212 | 221 |
| 5′ 9″ | 190 | 209 | 219 | 228 |
| 5′ 10″ | 196 | 215 | 226 | 234 |
| 5′ 11″ | 201 | 221 | 231 | 241 |
| 6′ 0″ | 207 | 228 | 240 | 249 |
| 6′ 1″ | 213 | 234 | 245 | 255 |
| 6′ 2″ | 219 | 241 | 253 | 263 |
| 6′ 3″ | 225 | 247 | 259 | 269 |
| 6′ 4″ | 230 | 253 | 265 | 276 |
| 6′ 5″ | 237 | 260 | 272 | 283 |
| 6′ 6″ | 243 | 267 | 280 | 291 |
| 6′ 7″ | 249 | 274 | 287 | 299 |
Tobacco or Nicotine Use
All smokers and alternative tobacco users will pay more for life insurance due to the increased risk associated with tobacco use. Additionally, most insurers require that former tobacco users be “tobacco free” for at least 12 months (maybe longer) to qualify for preferred non-tobacco rates. However, there are opportunities for alternate tobacco users to obtain non-tobacco rates depending on the type and frequency of usage. Occasional cigar users may even qualify for preferred plus nonsmoker rates depending on the circumstances.
Determining your Health Class for Tobacco and Nicotine Users
This chart will help you identify which rate class you may obtain, based on your specific health information. This is a general guide for insurance underwriting risk assessment. Some alternate tobacco users (cigars, pipe, chewing tobacco, snuff) may qualify for non-tobacco rates.
| Category | Preferred Smoker | Standard Smoker |
| Physical / Mental Impairments and Medical History | NO ratable history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. | NO ratable history of heart, stroke, diabetes, cancer, respiratory, circulatory, anxiety, depression, sleep apnea, or any other internal problems. |
| Blood Pressure | Current or past treatment OK. 152/90 | Current or past treatment OK. 156/92 |
| Cholesterols Readings and Ratio | May not exceed 300 or ratio of 7.0, with or without treatment | May not exceed ratio of 8.0, with or without treatment |
| Cancer | Only some skin cancers | Depends on type and date of onset. |
| Family Medical History | No cardiovascular or cancer death in either parent. | No cardiovascular death in both parents. |
| Aviation | Commercial airline pilots accepted. Private pilots with exclusion or flat extra. | Commercial airline pilots accepted. Private pilots with exclusion or flat extra. |
| Hazardous Activities (i.e. Sky diving, Hang gliding, Rock climbing, Scuba diving etc) | May include flat extra. | May include flat extra |
| Personal Driving History | No more than 2 moving violations in last 3 years and No DWI, DUI, reckless driving, or suspension in last 5 years. | No more than 3 moving violations in last 3 years and No DWI, DUI, reckless driving, or suspension in last 3 years. |
| Substance or Alcohol Abuse | No abuse. | No abuse in last 7 years. |
| Residency/Citizenship | US citizen, resident for 3 years, must hold permanent Visa or Green Card. | US citizen, resident for 2 years, must hold permanent Visa or Green Card. |
An occasional cigar smoker may qualify for the top health class for key man life insurance.
Opportunities for Alternate Tobacco Users
Some non-cigarette tobacco users (cigars, pipes, chewing tobacco, snuff, nicotine patches, etc.) may qualify for non-tobacco rates depending on certain conditions. There are several life insurance companies that offer alternate tobacco users this special underwriting concession. You may be able to save as much as 50% off normal smoker rates.
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Common Health Impairments
The table below provides general guidelines for some of the most common health impairments and how each impairment relates to your underwriting class. Your underwriting class will be based on your current health, medical history, and additional underwriting information. Depending on the nature, severity, and treatment of your impairment, higher rates may apply. Underwriting requirements vary by company.
| Medical History | Best Class | Preferred | Standard |
| Alcohol / Drug Abuse Dependency History |  |
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| Arthritis (rheumatoid) | |
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| Asthma (requiring treatment within past 2 years) | |
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| Bronchitis (chronic) | |
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| Cancer (except certain basal cell skin types) | |
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| Cardiovascular / Heart Disease | |
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| Chronic Obstructive Pulmonary Disease | |
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| Crohn’s Disease | |
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| Depression (requiring treatment within past 2 years) | |
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| Diabetes (non-insulin dependent) | |
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| Diabetes (insulin dependent) | |
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| Emphysema | |
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| Epilepsy (seizures within past 5 years) | |
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| Gastric / Peptic Ulcers (requiring treatment within past 2 years) | |
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| Hyperlipidemia (treatment for elevated cholesterol/lipids) | |
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| Hypertension (High Blood Pressure) | |
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| Kidney / Liver Disease (chronic) | |
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| Melanoma | |
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| Mental Illness | |
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| Multiple Sclerosis | |
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| Stroke (including TIA) | |
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| Ulcerative Colitis | |
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| Vascular Disease | |
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Higher table class rates usually apply
Here are several other resources you may need in order to make certain you qualify for life insurance and understand how insurance underwriting risk assessment works.
Financial Underwriting Key Person Insurance
The amount of coverage available for key person insurance will be dependent upon the financial risk associated with the reason for buying the protection. Typical reasons for buying key person insurance include: key employee insurance, business loan indemnification, funding buy-sell agreements, key man risk for startups, and executive benefits. In each of these cases, the financial justification requirements are different. The general guidelines for underwriting key person insurance are described below:
1. Key Person Insurance
- Income including bonuses
- Niche experience of the key person
- Their contribution to earnings
- Education and prior work history
- Background of the company
- Company revenues, income and net worth
2. Business Loan Indemnification
- History of the business
- Reason for the loan
- Terms of the loan
- Collateral
- Company revenues, income and net worth
3. Funding Buy-Sell Agreements
- Ownership percentages
- Copies of the actual agreement
- Company valuation
- Company financial documentation
4. Key Man Risk for Startups
- Copy of pro forma/business plan
- Justification for FMV calculations/projections
- Bios on all key people, including prior experience and track record
- Point-in-time details on the startup’s operating plans
- Capsheet and company valuation
5. Executive Benefits
- Key executives income including bonuses
- Copy of the plan documents
- How the benefits were determined
- Company financial documentation
Regardless of how much insurance is applied for, whether key man life insurance or disability coverage, or requested by the business, an insurance company will approve a key man insurance policy based on their interpretation of the true risk exposure. Providing the detailed financial information above allows the insurance company to accurately assess the facts and make the best insurance offer.
Frequently Asked Questions about Complete Underwriting Guide For Key Man Insurance Policies
What Does Key Man Insurance Cover?
When a key employee dies, the policy’s death benefit can cover lost income, business debt, and operating expenses. Small businesses, which often depend heavily on one or two essential employees, can face major financial harm without this protection. A key person policy, whether term life insurance or permanent life insurance, provides a financial cushion, supporting business continuity. Premiums paid by the company ensure that the insurance proceeds go directly to the business, which owns the policy.
Key person insurance covers much more than just the loss of an essential employee. It can also protect against the financial impact of a disability, providing disability coverage alongside the death benefit. This dual protection helps maintain financial viability, covering business expenses, lost sales, and even company debts. In some cases, cash value can build up within a permanent life policy, offering an additional financial cushion.
What is a Key Man Life Insurance Policy?
A key man life insurance policy is a life insurance plan purchased by a business to protect against the loss of a vital employee. The business is the policy owner, premium payer, and beneficiary. If the insured key employee passes away, the company receives the death benefit, which can be used to cover financial losses or fund a replacement search.
What Are The Disadvantages of Key Person Insurance?
Key person insurance can be costly, especially for older employees or those with health issues, leading to higher premiums. The policy may also become irrelevant if the key employee leaves the company. Additionally, the payout is taxable if the company doesn’t meet certain IRS requirements for tax-free benefits.
What is an Example of Keyman Insurance?
An example of keyman insurance is a technology company purchasing a policy on its chief software developer. If the developer passes away unexpectedly, the company receives the insurance payout, which helps cover the costs of hiring a replacement, training new staff, and mitigating revenue losses caused by the disruption.
Conclusion and Summary of Complete Underwriting Guide For Key Man Insurance Policies
Understanding the underwriting process for key person life insurance is essential for businesses seeking to protect their financial stability. A key person insurance policy offers valuable insurance coverage, ensuring that if a key employee dies or becomes disabled, the business receives compensation to cover losses. This type of key employee life insurance safeguards the company’s financial interests.
Business owners should work with an insurance professional to determine how much coverage they need. This involves calculating the monetary value of the key employee’s contributions and assessing the potential lost income. Consulting a financial institution or a financial professional can also help businesses make informed decisions about the right coverage.
For small businesses, where one or two individuals hold sole financial responsibility, this type of business life insurance can be the difference between survival and closure. With options like disability insurance, permanent life insurance, and term life insurance, companies can tailor their policies to meet their specific needs. Consulting with an experienced financial professional ensures that the policy aligns with the company’s goals and provides the necessary financial cushion during difficult times.
