Key-Man Insurance is meant to insure the viability of the company in case of a key person’s death.  For example, the death benefit may be used to hire someone to fill the role left vacant by the deceased person.  The death benefit may also be used to buy-back the shares (if he/she was a shareholder) from the deceased’s estate rather than bring on an unfamiliar person to leadership.  Key-Man insurance may also be used to provide a portion of the death benefit to the beneficiary of the key-person. 

Although the preceding examples seem as simple as purchasing life insurance and signing an agreement, it may be fairly complex.  Details such as who pays the premium, are their taxes involved, how is the money distributed at the time of a death, are there taxes due on the death benefit, what happens if a key-person separates from the company, etc.