Key person life insurance can help a business protect itself against the financial risk associated with losing a key employee. Life insurance purchased on the life of a key person will pay the business, upon that employee's death, the proceeds of the policy. That benefit can be used to cover financial expenses and train the key person's replacement.

Key person life insurance can also provide a cash value benefit depending on the type of policy purchased. This cash value can be used for a few strategic business reasons while the employee is still living.

For example, the cash value may be withdrawn to cover unforeseen expenses or to overcome an economic downturn. Generally, it is not recommended to disturb the cash value of the policy, but it is available if absolutely needed. The cash value also provides the business with a tangible asset that can be used to show creditors that the business is sound financially. Additionally, the cash value can help fund a deferred compensation plan.

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