In many businesses, a small number of people bring in a large share of the revenue. When a top salesperson, rainmaker or influential advisor to the company dies, the loss can hit the income statement immediately. Key person insurance on these people protects the business while it replaces relationships that took years to build.
Key takeaways
- Rainmakers and sales leaders are often more financially important than their title suggests, because revenue follows their relationships.
- Carriers typically justify key person coverage using a multiple of compensation, supported by evidence of the person’s contribution to revenue.
- Even non-employee directors can sometimes qualify for modest coverage when their economic impact is well documented.
When a rainmaker dies, the business loses more than an employee; it loses the relationships that drive its revenue.
Why rainmakers deserve their own analysis
A sales leader’s value is tied to client relationships, referral networks and team leadership. Losing that person can mean lost accounts, delayed deals and the cost of recruiting and training a replacement, often at higher pay. Owners tend to insure themselves first and overlook the people who actually drive sales. For the basics, see our article on key person coverage.
Justifying the amount
Carriers commonly look at a multiple of total compensation, often up to about ten times, as a starting point. For rainmakers, a strong case adds:
- The share of revenue or gross profit tied to the person’s book of business
- Commission and bonus history, not just base salary
- Estimated cost and time to recruit and ramp up a replacement
- A cover letter explaining the person’s role and impact
A clear story matters. Our article on writing underwriting cover letters shows how to present it.
An unusual case: outside directors
Sometimes a company’s most important signal-caller is not on the payroll. A board member or outside advisor may shape strategy, open doors or lend industry credibility. Carriers do not traditionally recognize these people for key person purposes because they are not employees and have little or no compensation to apply a multiple to.
In one case, however, our team helped a carrier consider modest coverage of $250,000 on directors. Their contributions to the company were well documented, they received meaningful compensation ($2,000 a year plus $1,000 per meeting) and the company was also insuring its traditional key people under standard guidelines. That small success also opened the door to personal planning for two of the key people.
Structuring and compliance
- The business applies for, owns and is beneficiary of the policy.
- For employer-owned coverage, satisfy Section 101(j) notice and consent requirements before issue so the death benefit remains income-tax-free, and file Form 8925 annually.
- Revisit coverage as the person’s production and compensation change.
Contact SRS to discuss key person cases, especially those outside common guidelines.
Frequently asked questions
How much key person insurance can a business buy on a salesperson?
Carriers often use a multiple of total compensation, commonly up to about ten times, supported by evidence of the person’s contribution to revenue. Each carrier has its own guidelines.
Can a company insure a director who isn’t an employee?
Sometimes. Carriers are cautious, but modest amounts may be possible when the director is compensated and their economic value is well documented.
Is key person insurance tax-deductible?
Premiums are generally not deductible when the business is the beneficiary. The death benefit is generally income-tax-free if Section 101(j) requirements are met.
Reviewed by Tim Fuller on 2026-09-26
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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