Key Person Insurance: What If Your Best Employee Is Gone?

You Insure the Building. The Fleet. The Equipment.

Most incorporated business owners carry coverage on everything the business owns — the building, the fleet, the equipment. Almost none of them insure the person who actually makes the business work.

In Episode 9 of Keep What You Build, Martin Ochwat and Greg Rozdeba sit down with Thomas Hull, a fourth-generation advisor at Hull Life Insurance — a firm that’s been placing coverage for Canadian families and business owners since the early 1900s. The topic is key person insurance: what it actually is, who needs it, what it costs, and what happens to a business when the person it can’t run without is suddenly gone.

If this person disappeared tomorrow, would the business be affected financially? That’s the test.

A key person isn’t always the owner. It can be an executive, a top salesperson, or whoever quietly holds the client relationships together — anyone whose absence would hit revenue, spook lenders, or shake staff and client confidence.

The $7M Business That Sold for $40M

The case Thomas keeps coming back to: a West Coast hospitality client diagnosed with stage three pancreatic cancer, who didn’t survive it. The business was worth roughly $7 million at the time. The key person payout let his family install a management team instead of liquidating — and four years later, they sold the business for $40 million.

Without that coverage, Thomas says, the family would likely have been selling off assets to stay afloat — and the business itself would probably have been the first thing to go.

How Much Coverage Do You Actually Need?

Who Owns It, and How the Tax Works

The corporation owns the policy and pays the premium on its key employee. The mechanics: premiums aren’t tax-deductible, but the death benefit is received tax-free by the corporation — and the portion above the policy’s adjusted cost basis can flow out to shareholders tax-free through the Capital Dividend Account.

Term vs. Permanent

Which fits depends on the role. A younger employee expected to stay for decades, or coverage meant to build cash value the business can borrow against later, points toward permanent. A defined window — a founder easing toward retirement, a specific growth phase — often points toward term instead.

Disability, Not Just Death

Thomas flags this as the point owners miss most: a long-term disability can cost a business more than a death, because the person is gone from the role but the company may still owe them compensation or benefits — and standard group benefits rarely cover a key person adequately at that income level.

Key Person Insurance vs. a Funded Buy-Sell Agreement

The two get confused often, and Thomas draws the line: key person insurance protects the business against the financial hit of losing someone critical. A funded buy-sell agreement protects the ownership transition when a partner dies or exits — a different problem, sometimes solved with an overlapping policy, sometimes not.

What to Do Next

If you’ve never asked the one-question test — who, if they disappeared tomorrow, would hurt your business financially — that’s exactly the gap this episode covers. Book a free strategy call below and we’ll help you figure out honestly whether you have a key person, and what protecting them would actually cost.

This episode is general information, not tax or legal advice. Figures are current as of 2026 and vary by province and situation — confirm your own numbers with your CPA before acting.