Key Person Risk: The Exposure Most Business Owners Ignore

The Quiet Exposure

Most owners of $500K to $10M revenue companies can name the person whose departure would create the deepest operational disruption. Often it's the founder. Sometimes it's a top salesperson, a lead engineer, or an operations head whose relationships, expertise, or institutional knowledge are not easily replaced.

Knowing who that person is isn't the same as having a structure for what happens if they're gone. Key person risk is the financial exposure created when a critical contributor is lost, and most businesses carry it without quantifying it.

How Key Person Coverage Works

Key person life insurance is owned by the business, with the business as beneficiary. If the insured key person dies, the death benefit pays directly to the company, providing liquidity to recruit a replacement, cover lost revenue, retire debt, or stabilize operations during the transition.

The structure is simple. The discipline is in sizing it correctly.

Quantifying the Exposure

A defensible key person figure considers:

• Replacement cost, recruiting, signing bonus, ramp time, lost productivity during search
• Revenue at risk, directly attributable revenue or pipeline tied to the key person's relationships
• Debt obligations, loans personally guaranteed or operationally tied to the contributor
• Transition runway, months of operating expenses to absorb during disruption

For most $500K to $10M businesses, the number lands between 5 times and 10 times the key person's annual compensation, plus directly attributable revenue.

Where to Start

A Premier 72 key-person review identifies your top three exposures, quantifies them in plain language, and structures coverage that fits your capital position. The output is a written framework, not a sales pitch.