Small businesses, because they have a limited number of employees, frequently have what are called "key" employees who are critical to the business. They may be "key" because the customers and suppliers know and trust them, or they may manage a critical process within the business. Often, in a startup business, the key employee is the founder.
Key Employee Insurance protects your business against the loss of a key employee. If you are applying for a business loan, your banker may require this insurance (or life insurance) as a way for the bank to get its money back if you are incapacitated in some way.
The loss by the death or disablity of a key employee can be financially crippling to a business. Insurance policies on the life or injury of a key employee compensate the business against losses that occur because of the person's death or disability. A policy on an owner can also provide the surviving partners or owners with the money to buy the dead partner's stake from their estate.
You might also want key employee insurance is if you employ one sales person who generates 80 percent of all your revenues. If that person is incapacitated, it may take you two or three months to replace them. Key employee insurance would cover the difference in the revenue you produce until the person can return to the job or is replaced.