Essentially, this is a corporate owned life insurance policy tied to a key person within the company. In the unfortunate event of the death of an insured key-person, the proceeds of the policy are paid to the company. These proceeds are used to provide funds for lost revenue, costs associated with searching and training a new person to fill that role as well as other continuity matters associated with such an event.

This is a corporate owned disability insurance tied to a key-person in the business. It is similar to Key-Man life insurance in its form and function as a form of insurance against a key-person becoming disabled. Should a key person become disabled and no longer able to perform his or her duties, the proceeds of the policy are used to provide funds for lost revenue, costs associated with searching and training a new person to fill that role as well as other continuity matters associated with such an event.

A common trigger for Key Man Insurance can take place during a funding phase. Key man coverage can be a sticking point if a VC firm recognizes certain individuals as key to an organization. Outside financing will want the company to protect itself against the loss of a key person such as a company CEO or a technical co-founder.