Who purchases and owns a "key man" policy?

A "key man" policy, also known as key person insurance, is a type of life insurance that a business purchases on the life of an employee whose skills, knowledge, or leadership are considered vital to the company's success. The company itself is both the purchaser and the beneficiary of the policy. In the event of the employee's death, the proceeds from the insurance policy help the business to mitigate financial loss, cover recruitment costs, or stabilize operations during a difficult transition period.

While the employee is the insured party, they do not own the policy; rather, the business holds ownership to ensure that it can act on the insurance in a manner that supports its interests. This structure allows the company to address potential financial setbacks that may arise from losing a key team member, thereby safeguarding the firm's overall stability and operations.