SBA 7(a) Q&A
Short answer
Key-person life insurance protects a business from the financial loss incurred if a critical employee or owner dies unexpectedly. It provides funds to cover operational disruptions, find a replacement, or manage debt.
The sudden loss of a key individual can severely impact a small business's operations, revenue, and creditworthiness. Key-person insurance provides a financial safety net, allowing the business to navigate the transition period, maintain stability, and potentially avoid bankruptcy.
If a manufacturing business loses its lead engineer, who holds proprietary knowledge, a $1,000,000 key-person policy could cover the costs of hiring a specialized recruiter, temporary consultants, and lost revenue during the search for a new expert.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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This page answers “What is the primary purpose of key-person life insurance for a small business?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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