Glossary · People and paperwork
Key man insurance(key person insurance)
In short
A life policy on someone whose death would damage the business. Lenders often require it on you; smart buyers also put it on the seller during the transition. See our full guide at /seller-life-insurance.
What it means in a deal
When a business's revenue depends heavily on one person, a lender requires life insurance to protect the loan in case that person dies. On an SBA deal, the lender typically requires a policy on the buyer (you) for the term of the loan. It's also smart to take out a policy on the seller for the transition period — if they die before training is complete, you're left running a business you don't fully know. Premiums are modest and the protection is real.
Official sources
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-16. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Key man insurance
- How does business overhead expense insurance differ from key-person life insurance?
- When is life insurance on key principals a mandatory loan condition?
- How is life insurance structured when a business has multiple key owners?
- What is the typical amount of key-person life insurance coverage needed?
- Does the SBA require life insurance on key people in the business?
- How is the ideal coverage amount for key-person life insurance typically calculated?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-16 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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