Key Person and Buy-Sell Insurance: $1 Million of Coverage Costs About $100 a Month

A $1 million, 20-year term life policy on a healthy 40-year-old business owner costs about $86 to $109 a month, according to MoneyGeek's September 2026 analysis of quotes from more than 30 insurers. That's the policy doing the heavy lifting behind most key person insurance and buy-sell agreements.

Here's why that number matters right now. Gallup's fall 2024 survey of business owners, funded by JPMorganChase and the Kauffman Foundation, found that 52.3% of U.S. employer businesses are owned by someone 55 or older. That's roughly 3 million companies where an owner's death, disability, or exit isn't a distant hypothetical anymore.

Key person insurance and buy-sell insurance solve two different problems. Key person coverage pays the business when it loses someone it can't easily replace. Buy-sell coverage pays for an owner's share so the remaining owners, not a surviving spouse or an estate, end up controlling the company. Most owners need to think about both. Here's how each one works, what it costs, and the tax and legal rules that trip people up.

What Is Key Person Insurance?

Key person insurance, sometimes called key man insurance, is a life insurance policy the business buys, owns, pays for, and collects on when a critical owner or employee dies. The payout goes to the company, not the person's family, and it buys time: cash to cover lost revenue, recruit a replacement, pay down a loan, or reassure a bank that the business will survive the transition.

Think about who that is at your company. The founder who holds every major client relationship. The estimator who prices every bid. The partner whose contractor's license the business operates under. If that person was gone tomorrow, how many months would revenue take to recover?

A common starting point for the coverage amount is 5 to 10 times the key person's salary, according to Western & Southern Financial Group. That's a rule of thumb, not a formula. A better number comes from what it would actually cost to replace that person's contribution: lost profit during the gap, recruiting and training costs, and any debt a lender could call if that person dies.

Disability is the other half of the risk. A key person disability policy pays the business a monthly benefit when that person can't work because of a covered illness or injury. It's underwritten differently than life coverage, so ask your agent to quote both side by side.

What Is a Buy-Sell Agreement, and Why Does It Need Insurance?

A buy-sell agreement is a legal contract between business owners that decides who buys an owner's share, and at what price, if that owner dies, becomes disabled, retires, or leaves. Life insurance is what makes that contract payable on day one.

Without it, here's the scenario. Two partners own a Weber County landscaping company 50/50. One dies. His half passes to his spouse, who has no interest in running the business but needs income from it. The surviving partner now has a new co-owner, or he has to find a large sum of cash to buy her out. Few small businesses have that sitting in a checking account.

With a funded buy-sell agreement, the insurance payout buys the shares at the price the agreement already set. The spouse gets fair value in cash. The surviving owner keeps control. Nobody has to negotiate a price during the worst month of their lives.

The agreement itself gets drafted by an attorney. The buy-sell insurance that funds it is where an independent agent comes in, since the policy amounts need to match the valuation in the agreement and stay matched as the business grows.

How Much Does Key Person and Buy-Sell Insurance Cost?

Key person and buy-sell policies are priced like any other term life policy, because the carrier is underwriting the insured person's age and health, not the business. Here are MoneyGeek's September 2026 national averages for a $1 million, 20-year term policy on a nonsmoker in average health:

• Age 30: $54 to $67 a month
• Age 40: $86 to $109 a month
• Age 50: $194 to $262 a month
• Age 60: $545 to $771 a month

The lower number in each range is the average for women and the higher one is for men. Two things jump out. First, the price more than doubles between 40 and 50, then nearly triples again between 50 and 60. Buying coverage before the next birthday bracket matters.

Second, buy-sell coverage multiplies with the number of owners. Two 50-year-old partners insuring each other for $1 million apiece are looking at roughly $390 to $525 a month combined, depending on who's being insured.

Some businesses use permanent life insurance instead of term, especially when the owners plan to hold the company for decades or want cash value on the balance sheet. It costs substantially more per dollar of coverage, so ask your agent to run both before deciding. These are national averages, too. Your actual rate depends on health class, each carrier's underwriting, and the policy length. Tobacco use and certain health conditions will move the number more than age alone.

Cross-Purchase vs. Entity Redemption: Which Buy-Sell Structure Fits?

The two main ways to set up a buy-sell agreement differ in one thing: who owns the life insurance. That single choice changes how many policies you need, how the buyout gets taxed, and, since 2024, how much estate tax a deceased owner's family may owe.

• Cross-purchase: each owner buys and owns a policy on every other owner. When one dies, the survivors collect the payout and buy the shares directly. Two owners need two policies. Three owners need six. Four owners need twelve.
• Entity redemption (also called stock redemption): the business owns one policy on each owner. When an owner dies, the company collects and buys back the shares. Four owners need four policies.

Cross-purchase usually gives surviving owners a higher cost basis in the shares they buy, which lowers capital gains tax if they sell the business later. Entity redemption is simpler to administer when there are more than a few owners. Some businesses solve the policy-count problem with a trusteed cross-purchase or a separate LLC that holds the policies. Your attorney and CPA should weigh in on which structure fits your ownership.

What Connelly v. United States Changed for Buy-Sell Agreements

On June 6, 2024, the U.S. Supreme Court ruled unanimously in Connelly v. United States that life insurance proceeds a corporation receives to fund a stock redemption count toward the company's value for estate tax purposes, and the company's obligation to buy back the shares doesn't offset them.

The facts are a cautionary tale. Two brothers owned a Missouri building supply company, and the corporation carried a $3.5 million life insurance policy on each of them, per Plante Moran's summary of the case. When one brother died, the company used $3 million of the proceeds to redeem his shares. The IRS then valued the company with the insurance money included, which raised the value of his stake and the estate tax his family owed.

Two things keep this in perspective. The federal estate tax exemption rose to $15 million per person in 2026 under the One Big Beautiful Bill Act, according to Morgan Lewis, so many Northern Utah family businesses won't owe federal estate tax either way. The ruling still changes the math for larger companies, though, and it's a strong reason to review any entity-owned buy-sell plan with your attorney. Plante Moran and other advisers point to cross-purchase structures as the most direct fix.

The IRS Paperwork That Can Make a Key Person Payout Taxable

Life insurance death benefits are normally income-tax-free, but a business-owned policy loses most of that protection unless the company follows the notice-and-consent rules in Internal Revenue Code Section 101(j) before the policy is issued.

In plain terms, the business has to notify the insured owner or employee in writing that it plans to insure their life, state the maximum face amount, disclose that the business will be the beneficiary, and get their written consent. It then reports its employer-owned policies to the IRS each year on Form 8925. Skip the notice-and-consent step, and the payout above the premiums paid can become taxable income to the business, per IRS Notice 2009-48.

On top of that, premiums on a policy where the business is the beneficiary generally aren't tax-deductible under Section 264(a). That surprises a lot of owners, but it's the trade-off for a tax-free death benefit. If your company already owns a key person policy, ask whoever placed it whether the consent forms were signed before it was issued.

What Utah Business Owners Should Do This Year

Start with a short review. None of these steps takes more than an afternoon, and together they tell you whether your coverage matches your business today:

• Name your key people. List anyone whose sudden absence would cost you revenue, a license, a lender relationship, or a major client.
• Pull your operating or shareholder agreement. Check whether it has buy-sell language and when the valuation was last updated.
• Match the insurance to the agreement. If the business is worth more than it was when the policies were bought, the coverage is probably short.
• Check the Section 101(j) consent paperwork on any policy the business owns.
• Review the structure with your attorney if your buy-sell is entity-owned, given the Connelly ruling.

For Farr West, Ogden, and Heber Valley businesses run by family members or a pair of partners, this conversation is usually overdue rather than early. The Gallup data says more than half of employer businesses already have an owner past 55.

Frequently Asked Questions

How much does key person insurance cost?

A $1 million, 20-year term policy on a healthy 40-year-old costs about $86 to $109 a month, based on MoneyGeek's September 2026 national averages. The price depends on the insured person's age, health, and the policy length, not on the size of the business.

Is key person insurance worth it for a small business?

Key person insurance is worth it when losing one person would cut revenue, trigger a loan covenant, or cost the business a license it depends on. Small businesses are often more exposed than large ones, since so much knowledge and so many client relationships sit with one or two people.

Are key person insurance premiums tax deductible?

No, not when the business owns the policy and is the beneficiary. Those premiums generally aren't deductible under Internal Revenue Code Section 264(a), but the death benefit is typically received income-tax-free as long as the Section 101(j) notice-and-consent rules were followed before the policy was issued.

What happens if my business partner dies without a buy-sell agreement?

Their ownership share usually passes to their estate or heirs, depending on your operating agreement, and those heirs can become your new co-owners unless you negotiate and fund a buyout yourself. A funded buy-sell agreement sets the price in advance and uses life insurance to pay it.

How much buy-sell insurance do I need?

Each owner's buy-sell coverage should equal the value of their ownership share, based on the valuation written into the buy-sell agreement. Revisit it whenever the business value changes meaningfully, since a policy bought 10 years ago often won't cover today's buyout price.

The Bottom Line

Key person insurance protects the business from losing the person it runs on. Buy-sell insurance protects the owners and their families from fighting over what's left. Both run on the same basic product, and at about $86 to $109 a month for $1 million of coverage on a healthy 40-year-old, the premium is small next to the cost of an unfunded buyout.

Want to see what key person or buy-sell coverage would cost for your owners? Call The Insurance Center at (801) 622-2626 or request a quote at theinsurancecenter.com/contact. We'll shop the coverage across multiple carriers and coordinate with your attorney and CPA on the agreement itself.

This post is for educational purposes only and isn't tax or legal advice. Buy-sell agreements should be drafted by an attorney, and tax treatment should be confirmed with your CPA. Coverage, underwriting, and pricing vary by carrier and by the person insured.

About the Author: Jett Iverson is the Director of Marketing at The Insurance Center, an independent insurance agency serving Northern Utah since 1995. He works alongside licensed agents to help Utah families and businesses understand their coverage options and make confident insurance decisions.

Sources

• MoneyGeek, "How Much Does a Million Dollar Life Insurance Policy Cost? (2026 Rates)," data collected September 2026: moneygeek.com
• Gallup, "Most Small-Business Owners Lack a Succession Plan," fall 2024 survey funded by JPMorganChase and the Ewing Marion Kauffman Foundation: news.gallup.com
• Western & Southern Financial Group, "What Is Key Person Insurance?": westernsouthern.com
• Supreme Court of the United States, Connelly v. United States, No. 23-146 (June 6, 2024): supremecourt.gov
• Plante Moran, "Connelly's impact on tax and insurance planning": plantemoran.com
• Morgan Lewis, "Estate Tax Alert: New $15 Million Federal Exemption Becomes Law": morganlewis.com
• IRS Notice 2009-48, employer-owned life insurance guidance: irs.gov