Protecting Your Firm’s Most Valuable Asset: Its People

When you think about protecting your architectural practice, insurance for your office space, equipment, and professional liability probably comes to mind. But what about your people—the colleagues whose vision, client relationships, and expertise keep your business thriving? For many firms, especially small and mid-sized practices, the loss of a single key individual can disrupt operations, jeopardize client trust, and even threaten the financial future of the business. Key person life insurance is a practical way to safeguard your firm against this risk.

What Is Key Person Life Insurance?

Key person life insurance is a policy your firm purchases on the life of a critical team member—such as a partner, lead designer, or business manager. The firm owns the policy, pays the premiums, and is the beneficiary. If the unexpected happens, the policy provides the firm with funds to:

• Offset lost revenue and maintain cash flow
• Cover ongoing expenses such as payroll, rent, and debt obligations
• Recruit, hire, and train a qualified replacement
• Reassure lenders, clients, and employees of the firm’s stability
• Preserve goodwill, brand reputation, and project continuity

Why It Matters for Architects

Architecture firms often rely on a small number of leaders who carry client relationships, design direction, and the firm’s reputation. If one of those individuals were suddenly unavailable, the consequences could ripple across every project:

• Clients may delay or withdraw projects due to concerns about stability.
• Employees may feel uncertain and consider leaving.
• Banks and lenders may call in loans or hesitate to extend credit.
• Partners may face the burden of covering revenue gaps or redistributing workload.

Key person coverage helps ensure that your firm has the financial breathing room to adapt and continue serving clients without interruption.

How Much Coverage Do You Need?

A common rule of thumb is five to ten times the individual’s annual compensation (salary, bonuses, and benefits). However, the “right” amount depends on:

• The person’s role in generating revenue and maintaining relationships
• Your firm’s size, structure, and financial reserves
• Current debt obligations and contractual commitments
• Time and cost required to recruit and onboard a replacement

Your insurance advisor can help you calculate an amount that aligns with your firm’s risk profile and business continuity needs.

Types of Policies: Term vs. Permanent

• Term Insurance
• Affordable and straightforward
• Provides protection for a set number of years (often aligned with working years)
• Ideal when the primary goal is cost-effective coverage
• Permanent Insurance
• More expensive but includes a cash value component
• Can be used strategically—for example, borrowing against the policy for business needs
• In some cases, may be transferred to the insured as part of a retirement package

Additional Considerations

• Tax Treatment: Premiums are generally not tax-deductible, but policy proceeds are typically received tax-free by the business.
• Succession Planning: Key person coverage should be part of a broader plan for leadership transition and firm continuity.
• Client Assurance: Having coverage in place can be highlighted in RFPs or client communications as part of your firm’s stability strategy.

Next Steps

If you’re wondering whether key person coverage makes sense for your firm, or how much protection you may need, we can help you explore the options.

Contact: Mike Murphy (mike_murphy1@ajg.com)

Protecting your firm’s future starts with protecting the people who make it possible.

—This information is provided by the AIA Trust for educational purposes only and should not be construed as legal or financial advice.