Just released: How to raise venture capital in 2023

Download

We created a new Key Man insurance product…and it’s awesome.

TL:DR

Key Takeaways

Carl Niedbala - Founder Shield
Carl Niedbala

COO & Co-Founder

Key man insurance for startups doesn’t really exist in the life insurance markets.  There are a few reasons for this and I’ll explain the big ones.

Why traditional Key Man Insurance doesn’t work:

1. Valuation One of the major metrics that life insurance underwriters use is valuation/capitalization.  Usually underwriters will look at the financials to get a sense of what revenues a company is generating.  They’ll also look at fair market value.  They use these numbers to justify (or deny) the multimillion dollar policy limits the companies are requesting. This practice clearly poses problems for venture-backed startups seeking key man insurance.  First, many startups are pre-revenue or just starting to see some revenue.  Second, giving a startup a documented fair market value may: a) trigger terms in certain equity and convertible debt instruments (not good!), or b) be completely and recklessly speculative. The bottom line is neither of these metrics really give the underwriter a clear picture.  This leads to declinations and a long back-and-forth conversation.  The underwriters usually say something like, “this company has no revenue and is worth $3M at best. Why do you need $2M in coverage for each of the 3 founders?”  “Because our investors said so” isn’t really a satisfactory answer.

2. Efficiency (or lack thereof…) The key man evaluation process is kind of intense.  Not only do you have to provide financials, sensitive family history information, and personal wealth information, but you have to take a medical exam.  All of this means the depletion of the most valuable resource for any entrepreneur: his or her time.  By the time information is collected and delivered, medical exams are scheduled and given, and the underwriting is finished, months can pass. No modern entrepreneur is used to anything taking months, so the end result is an overall poor/frustrating experience.

The Founder Shield Advantage

Luckily this is all in the past!  The elusive product now exists: key man insurance for startups. With our new Key Man Insurance product, all the Key Man has to do is answer a few basic questions and he or she is completely done.  No personal questions, no medical exams.  There is no lengthy underwriting required and policies are provided at a flat rate of $1750 (plus state taxes) per $1M of coverage. If you’re in need of some quick and easy key man insurance, reach out to us over the phone at (646)-854-1058, shoot us an email at info@foundershield.com, or click this link to start filling out an application!

Related Articles

key person insurance
April 20 • Directors & OfficersKey Man

Key Person Insurance & CFI for Late-Stage Companies

Late-stage companies have plenty at stake, especially if a critical team member passes away. These policies support momentum after a loss.

contract protection insurance featureed
April 4 • Key Man

Key Person Insurance Alternatives

Key Person Insurance can be a valuable policy for when the unthinkable happens, but it has its disadvantages. We examine Contract protection insurance (“CPI”) and other alternatives.

key man vcs wrong post
March 6 • Key Man

Key Man Insurance: VCs – You’re Doing it Wrong

Given our relationships with a lot of early stage VCs in around the country, we do a ton of Key Man Insurance policies.  If you’re unfamiliar with these, Key Man policies are basically a life insurance policy that pays out to the company if anything happens to the “Key Man.”  And if you’re unfamiliar with

stress free key person insurance post
February 16 • Key Man

The Easiest Way to Get Key Person Insurance for your Business

Many VC investors require founders going through an institutional round of funding to get key person insurance. For those of you that are nearing the close of your first big seed or series A round, there are two routes you can go in procuring your key person insurance policy: The traditional route or the Founder Shield

achievement adult agent scaled
May 1 • Key Man

Death of a Co-Founder: The Importance of Key Man Life Insurance

Key Man Life Insurance can be touchy subject for most startup founders.  Most of the time it’s a “just-don’t-think-about-it” situation, and the only time the idea even comes up is when it appears on the Series A term sheet.  Entertaining the thought of losing a co-founder is one of the last things any entrepreneur wants to