This clause requires you to buy life insurance on a critical employee—for example, your company's only software engineer or your CEO. If that person dies, the insurance pays your company a lump sum to cover the cost of finding and training a replacement, or to pay down debts while you reorganize. This matters because losing a key person can cripple a business, and the other party to your contract wants assurance you can survive that loss and keep performing your obligations. This is common in partnerships and contracts with small companies.
First, get written consent from the employee before the other party requires this—in many places it's legally required, and employees often object to being "insured." Negotiate the coverage amount realistically: it should equal roughly 12–24 months of that person's salary, not an arbitrary large number. If the other party insists on this clause, ask them to explain which specific person is "key" and why, so you're not forced to insure multiple people unnecessarily.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires you to buy life insurance on a critical employee—for example, your company's only software engineer or your CEO.
Why should I care about this clause?
If that person dies, the insurance pays your company a lump sum to cover the cost of finding and training a replacement, or to pay down debts while you reorganize.
What are my options?
This matters because losing a key person can cripple a business, and the other party to your contract wants assurance you can survive that loss and keep performing your obligations.
How does this affect small businesses?
This is common in partnerships and contracts with small companies.