When Key Person Life Insurance Goes Wrong: How TRC Financial Helped a PE Firm Fix a Costly Mistake
- TRC Financial
- 3 days ago
- 3 min read
A prominent private equity firm recently turned to TRC Financial after discovering a problem lurking inside the insurance portfolio of one of its portfolio companies: a poorly executed key person life insurance policy on the company’s CEO. The $10 million policy was intended to protect the business’s most critical asset, its leadership, but the premium costs were unreasonably high, and something didn’t add up.
This wasn’t just a minor pricing issue. The policy was an earnings expense of over $90,000 in annual premiums - more than five times what it should have cost. That’s when TRC Financial’s team stepped in.
The Problem: Missteps in Key Person Life Insurance Underwriting
After a deep-dive policy audit, our team uncovered several underwriting mistakes and oversights that had severely inflated the policy’s premium cost:
Misclassified Smoking Status: The CEO had been classified as a smoker due to occasional ceremonial cigar use. This simple misclassification triggered much higher premiums.
BMI Misjudgment: The prior insurer took a narrow and unfavorable view of the CEO’s body mass index (BMI), ignoring broader context and supporting health data.
Erroneous MIB Record: Most concerning was an inaccurate Medical Information Bureau (MIB) entry noting a coronary catheterization that never happened. This error flagged the CEO as a higher risk insured and skewed underwriting assumptions.
Each of these errors alone could impact pricing. Combined, they created an underwriting disaster.
Our Process: Confidential, Controlled, and Client-Centered
TRC Financial deployed its Private Underwriting Process — a proprietary service designed to give clients control over their underwriting experience. Our process is 100% digital and confidential, and in many cases, we can even issue new policies without an insurance exam.
Here’s how it worked in this case:
We secured and privately reviewed the CEO’s medical records, without triggering any new MIB activity.
We helped the CEO engage with the MIB directly to remove the false record — a move that had an immediate, positive effect on the CEO’s insurability.
We provided additional health documentation to correct the smoking status and present an accurate picture of the CEO’s health, including BMI and lifestyle data.
Finally, we took the cleaned-up underwriting profile and shopped it across our network of insurance carriers, leveraging real offers to re-price the coverage competitively.
The Results: Same Coverage, Massive Savings
Once the underwriting errors were corrected and the policy was re-evaluated through our firm’s process, the results were dramatic:
Annual Premium Reduction: From ~$90,000 to ~$17,000
Coverage Maintained: $10 million
Client Confidence Restored: The PE firm was assured that the business’s most important asset, the CEO, was still protected, but now at a sustainable cost.
Why This Matters for Private Equity (PE) and Venture Capital (VC) Firms
As we outlined in our previous blog post, insuring the key people in portfolio companies is essential for private equity and venture capital. But doing it right is just as important. Poor underwriting, incomplete medical records, or rushed inexperienced policy placement can lead to wasted capital and underperforming protection.
In this case, the original policy was well-intended but poorly executed. TRC Financial fixed the problem and saved tens of thousands in annual premium costs, enhanced long-term risk protection, and reinforced their investment in the business’s leadership.
If your PE or VC firm is evaluating key person insurance coverage or suspect something might be off in your existing life or disability policies, don’t wait. Contact us today to experience our Private Underwriting process and optimize your insurance strategy with confidence.
For more information on how to effectively implement Key Person Insurance in your investment strategy, visit TRC Financial's Private Equity and Venture Capital Insurance Solutions. You can also read our Case Study here: Private Equity firm insures the founders and key professionals within its portfolio of companies