Which life insurance policy is typically used for key person insurance?

Key person insurance is specifically designed to provide financial compensation to a business in the event that a crucial employee or key individual passes away or becomes incapacitated. This type of insurance helps mitigate the financial impact that the loss of such a significant contributor can have on the company's operations and stability.

Universal life insurance is often preferred for key person insurance because it combines the features of flexible premiums, a cash value component, and the ability to adjust the death benefit. This flexibility allows businesses to tailor the policy to their specific financial strategies and risk management needs. The cash value accumulation can be beneficial for corporate financial planning, providing access to funds that can be used for the business in various ways during the key person’s lifetime, such as loans against the policy.

While term life insurance might seem appealing due to its lower initial costs, it does not offer cash value growth or the flexibility in premiums and benefits that universal life provides. Whole life may also be too rigid in terms of premium payments and benefit adjustments for a business seeking to adapt to changing needs. Variable life, though offering investment options, may introduce more risk and complexity, making it less suitable for the straightforward financial protection typically sought in key person insurance.

Thus, universal life insurance aligns well with the needs of businesses