Financially 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. Please contact MEG at (877) 583-3955 to discuss your special circumstances or additional questions on financial underwriting.