Key Person Insurance

In every dealership, there are a handful of people who make the business run smoothly. Maybe it’s the sales manager who keeps the team motivated, the service director who ensures customer satisfaction, or even the owner who sets the vision. But what happens if one of those key individuals leaves for another company or worse, passes away unexpectedly?

Protecting your dealership from the financial fallout of losing a critical team member isn’t just smart, it’s a risk management must.

What is a Key Person?

A key person is anyone within your dealership, an owner, partner, or employee, whose contributions are essential to the success of the business. Without them, operations, revenue, and customer loyalty would take a major hit.

What is Key Person Insurance?

Key person insurance is a life insurance policy paid for and owned by the dealership. The dealership is the beneficiary, meaning if the key person passes away, the business receives the benefit. This gives your team financial stability while you work through the transition.

Who Qualifies as a Key Person?

Any employee who plays a critical role in keeping your dealership profitable can be covered under a key person policy. Common examples include:

• Owners and partners

• General managers or sales managers

• Service and parts directors

• Finance managers

• Top-performing salespeople or technicians

• Office or HR managers who keep the operation running

If your dealership would struggle to replace their knowledge, skills, or relationships, they’re likely a key person.

How Much Coverage is Needed?

The right amount of coverage depends on the role and contribution of the individual. Start by estimating the profits your dealership could lose without them, then factor in the cost of recruiting, onboarding, and training their replacement. Policy limits should be sized according to the person’s overall contribution to the dealership.

How Can the Benefit Be Used?

The payout from a key person policy can be used in several ways:

• Covering lost revenue while a replacement is found

• Funding recruitment and training costs

• Offsetting disruption in service or sales operations

• Buying out a partner’s share of the business in the event of their death

In today’s labor market, replacing a highly skilled general manager or finance director may take months. Having this coverage buys you time and stability during a critical period.

Types of Key Person Policies

There are two primary options:

• Term Policies – Coverage for 10–30 years, cost-effective for most dealerships.

• Whole Life Policies – Coverage for the life of the insured, with a built-in cash value account that grows over time and can be considered a company asset.

Tax Considerations

In most cases, premiums are paid with after-tax dollars, and the benefit is received without income tax liability to the dealership. Exceptions can apply, especially for C-corporations, so always confirm with your accountant.

Protecting the Future of Your Dealership

If your dealership would struggle without you, or without one of your top employees, key person insurance is an essential safeguard. It ensures your business can survive, even in the face of an unexpected loss.

At DealeRisk, we specialize in helping dealerships like yours protect what matters most. Our team can walk you through the details of key person coverage and help you determine the right solution for your business.