Which component makes a business the beneficiary in Key Person Insurance?

In Key Person Insurance, the business itself is named as the beneficiary because this type of insurance is designed to protect the company from financial losses that could occur if a key employee were to unexpectedly die or become disabled. The rationale behind this is that the key person—often a founder, executive, or vital employee—contributes significantly to the company's success and its value.

By naming the business as the beneficiary, the policy ensures that the funds from the insurance payout can be used by the company to cover costs associated with the loss of that key employee. These costs might include hiring a replacement, covering lost revenue during the transition, or addressing any other financial impacts. This arrangement helps stabilize the business and assists in its continuity in the face of such an unexpected event, reinforcing the importance of protecting valuable human resources.

Other potential beneficiaries listed, such as the employee’s family or a third-party trustee, do not align with the primary purpose of Key Person Insurance, which focuses on the financial well-being of the business. The insurance company is simply the party that underwrites the policy and pays out claims and is not a beneficiary in this context.