Compare quotes for key person insurance in Canada
In just a few minutes, compare personalized life insurance quotes for key person coverage – protect your business's future with us today.
compare key person quotesHow to get key person life insurance with Ratehub.ca
Share business and employee details
Key person insurance protects your business, so we’ll need some basic information about your company and the individual being insured.
Speak with an insurance broker
We’ll show you options from multiple providers – a licensed broker will connect with you to help select the right coverage for your cmpany's needs.
Finalize your policy selection
The insured individual may need to complete a medical exam, but your broker will guide you through every step of the process.
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What is key person insurance?
Matt Hands, VP, Insurance
Key person insurance is a type of life insurance that covers a company’s owner, executive, or other critical employee. The company typically pays the premiums and is also named as the beneficiary. This means that if the insured person passes away, the company receives a lump sum payout, which can be used to help cover business-related expenses.
The idea behind this coverage is to protect the business from financial loss caused by the death of someone whose expertise, leadership, or business relationships are vital to the company's success. For example, if a CEO were to unexpectedly pass away, key person insurance could provide the business with the financial support needed to stay afloat during the transition, recruit a replacement, and reassure stakeholders.
Key person insurance may also be known as:
- Key man insurance
- Key woman insurance
- Key employee insurance
- Business life insurance
- Corporate-owned life insurance
What can key person insurance be used for?
A business can use the death benefit from a key person policy at their discretion, but common purposes for the funds include:
Protect profit
Coverage can be used to supplement profits if the key person passes away, delaying business projects or deals.
Buy out shares
In partnerships, the surviving shareholders can use a life insurance payout to purchase the remaining shares.
Pay off debt
If the deceased was responsible for guaranteeing loans, the key person policy can help pay off that debt.
Common types of key person insurance
There are several types of life insurance policies that can be used for key person coverage, depending on the needs of the business. This includes term life insurance, whole life insurance, and universal life insurance:
Term life insurance
Permanent life insurance
Other types of key person coverages
Aside from life insurance, many key persons are also covered by living benefits. These benefits provide a payout if the insured is unable to work unexpectedly. This coverage is especially important because it helps protect the business from financial strain if a key employee cannot perform their duties for an extended period.
Critical illness insurance is an important supplement to traditional key person life insurance. It provides a lump-sum payout to the business if the insured key employee is diagnosed with a serious illness covered by the policy – such as cancer, heart attack, or stroke – that temporarily or permanently affects their ability to work.
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How much does key person insurance cost?
Key person insurance costs vary depending on several factors related to the individual being insured and the business itself. Here's a breakdown of what affects the premium:
Policy
The cost will depend on the type of policy (term vs. permanent), length of the term, and whether it includes any riders or additional benefits.
Gender
Statistically, women tend to live longer than men, so all else equal, women often receive slightly lower rates for the same coverage.
Age
Younger individuals typically cost less to insure because they’re considered lower risk for illness or death.
Health
The better the key person’s health, the lower the premiums. Insurers may require a medical exam to assess any risks related to pre-existing conditions, lifestyle, or family history.
Benefit
The higher the benefit or payout, the business wants, the more expensive the premium. Companies usually base this amount on the person’s value to the business – such as revenue they bring in or the cost to replace them.
Business type
A company’s size, industry, and financial stability can also influence rates. Riskier industries or startups may pay more due to the higher perceived financial impact of losing a key employee.
Key person insurance considerations
Before purchasing a key person insurance policy, it’s important to carefully evaluate your business’s unique needs and circumstances. Here are some key factors to keep in mind:
Identify who qualifies as a key person
This could be a founder, top executive, lead salesperson, or anyone whose knowledge, skills, or relationships are important to the success of your business.
Determine the right coverage amount
Consider the financial impact of losing that individual. This might include lost revenue, recruitment and training costs for a replacement, or even the potential loss of investor confidence.
Decide on the policy type
Most businesses choose term life insurance for its affordability, but permanent coverage may be appropriate if you're looking for long-term security or cash value growth. Speak with a licensed broker for more guidance.
Understand ownership and beneficiary structure
Typically, the business owns the policy, pays the premiums, and is named the beneficiary. Make sure this structure aligns with your legal and tax obligations.
Consider critical illness & disability coverage
Key person insurance isn’t limited to death benefits. You may also want coverage that pays out if a key person becomes ill or disabled and can’t work for an extended period.
Review the coverage regularly
Your company’s key personnel and financial situation can change over time. Reassess your coverage periodically to ensure it still meets your business needs.
Know the tax implications
In most cases, premiums for key person insurance are not tax-deductible if the business is the beneficiary. However, the death benefit is typically received tax-free. Tax treatment can vary depend, so it’s wise to consult with a tax advisor before purchasing coverage.