What is key-person disability insurance?
Key-person disability insurance is coverage intended to protect a business against the loss of an owner or employee whose disability would materially hurt revenue, relationships or operations. In a typical arrangement the business owns the policy and receives the benefit, which may help with lost profits, recruiting or training a replacement, or reassuring lenders and customers — but ownership, premium payer and beneficiary vary by arrangement.
It is different from personal disability-income coverage (which pays the individual) and from disability buyout coverage (which funds a purchase of an owner's interest). Key-person life insurance addresses death rather than disability.
Premium deductibility and benefit taxation for business-owned coverage depend on structure, ownership and who pays, and are confirmed by a CPA.
Reviewed by Bay Area Wealth Advisors. Last reviewed 2026-10-01. Educational information only — not individualized financial, tax or legal advice.