Identification of Key Individuals: The business identifies key individuals whose contributions are critical to the operation and success of the company. Key persons may include founders, owners, executives, top salespeople, key project managers, or individuals with specialized skills or expertise.

Insurance Policy Purchase: The business purchases a life insurance policy on the life of the key person or persons, naming the business as the beneficiary. The policy may also include provisions for disability coverage or critical illness coverage, depending on the needs of the business.

Premium Payments: The business pays regular premiums to the insurance company to maintain the key person insurance policy. Premiums are based on factors such as the insured individual's age, health, occupation, coverage amount, and the type of policy.

Death Benefit Payout: If the insured key person dies while the policy is in force, the insurance company pays a death benefit to the business as the beneficiary. The death benefit proceeds can help the business cover expenses such as recruiting and training a replacement, paying off debts or loans, compensating for lost profits or revenue, or providing financial stability during a transition period.

Tax Considerations: The premiums paid for key person insurance policies are generally not tax-deductible as a business expense. However, the death benefit proceeds received by the business are typically tax-free, providing a tax-efficient way to protect against the financial impact of losing a key employee.