Key person life insurance
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What is key person insurance?
Key person insurance, also known as key man insurance, key woman insurance, and business life insurance, is a specialist form of life insurance designed to protect businesses when someone crucial to the ongoing operations of the company – such as the owner or chief executive – dies suddenly.
How does it work?
This type of insurance protects a business and is a form of business insurance. Therefore, it is taken out by businesses rather than individuals and any lump sum payouts are made to the company account.
Once a claim has been approved and a payment has been made relating to the individual listed on the policy, the policy will automatically end.
It can be taken out alongside critical illness cover, in which case it will also pay out should the individual concerned become unable to work due to a critical illness diagnosis.
Why do I need key person insurance?
If your business relies heavily on the input of a small number of people, the loss of any one of them is likely to have a big impact on sales and performance. Key person insurance offers one way to protect your company and the other members of the team should an important individual die or become critically ill by providing a cash injection when you need it most.
Who is considered a “key person” in a business?
A key person is anyone who is integral to the day-to-day operations of your company, for example, because they make high-level decisions or are responsible for your main revenue stream. In some instances, a key person could also be someone on whom vital lending arrangements or a particular appeal depend.
What types of key person insurance can I get?
Key person life insurance
Pays a lump sum to the company if the employee dies
Key person critical illness cover
Pays a lump sum to the business if the employee is diagnosed with a critical condition, such as a heart attack, cancer, or stroke
Income protection
Pays a regular monthly income to the business if the employee becomes ill and is unable to work
Disability insurance
Covers disability that prevents the employee from working
What does key person insurance cover?
The purpose of key person insurance is to help a business survive despite the loss of a fundamental member of the team. The benefits are triggered by the individual’s death or – in some cases – diagnosis with a terminal or critical illness and, depending on the insurance provider, will help to cover financial repercussions such as:
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Recruitment and training costs
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Revocation of any outstanding loans
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Loss of existing contracts or relationships
What are the advantages and disadvantages of key person cover?
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Advantages
Provides a safety net for the business, covering potential revenue losses and helping with expenses during a difficult transition
Helps ensure that the business can continue operating smoothly despite the loss of a key individual.
Having key person cover can reassure investors and stakeholders that the business is prepared for unexpected events
Lenders may require key person insurance as part of loan agreements, providing extra security for both parties
It can be an attractive benefit when hiring key personnel, showing that the company values its employees
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Disadvantages
Premiums can be expensive, particularly for businesses with multiple key individuals or for those with higher risk profiles
The payout is typically based on the insured individual's contribution to the business, which can be difficult to quantify
Relying too heavily on key person cover might lead to complacency instead of the business focusing on growing the team
The insurance payout may not fully compensate for the loss of expertise, leadership, or relationships that the key person provided
Setting up and managing key person insurance can add extra administrative burdens for business owners
What impacts the price of key person cover?
Type of cover
The level and type of cover will affect the cost of your business life insurance. The higher the cover limit, the more you'll pay.
Risk profile
Businesses in industries or professions that are considered higher risk may have to pay more. For example, those who work in construction, the armed forces, or the emergency services may face higher premiums.
Size of your business
Larger businesses with more employees are usually considered riskier and charged higher premiums.
Claims history
Businesses with a history of frequent claims are typically charged more.
Excess levels
A policy's excess is the amount you pay each time you make a claim. Lower excesses result in higher premiums.
Medical underwriting
Each person will need to be medically underwritten, which will consider factors like age, health, and lifestyle.
How much key person cover do I need?
The general rule when taking out key person insurance for someone who brings revenue into a business is to insure them for 20% of 2 x the company’s annual gross profit. Working out how much insurance is required for a critical, but non-revenue producing individual, such as a finance director, is slightly harder.
However, most insurers will offer an amount equivalent to around 20% of of 5 x the company’s net annual profit. Another way to calculate how much key person insurance you need for a particular individual is to think about the potential replacement cost, for which a common calculation is: 10 x their annual earnings.
Your key person premiums will depend on how much business protection you would need if a key employee were to pass away. You can also add critical illness cover to this type of insurance policy, which provides extra protection if the key person e.g. the business owner is diagnosed with a terminal illness or develops a disability.
Our expert says…
Key person life insurance is an important tool for businesses to safeguard their future. By insuring key employees who are critical to your business operations, you can mitigate the financial risks associated with their unexpected loss. This coverage can provide the financial support necessary to recruit and train a replacement, maintain business continuity, and protect your company's long-term viability./
Saarrah Mussa Former Content Writer
Guides and expert tips for key person life insurance
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Why compare key man insurance with MoneySuperMarket?
We give you access to business life insurance deals from leading UK providers getting the right cover for you and helping you save money on your premiums.
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Tailored cover
Whatever your line of work, we can find relevant business life insurance policies that work for you.
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Get quotes easily
Business life insurance can be complex, but just answer a few simple questions and we can match to available policy options.
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It's free
MoneySuperMarket and LifeSearch never charge you for our services. LifeSearch find their most appropriate cover, at their most competitive prices.
Ready to compare quotes? Here is what to do next
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Tell us about your business
Let us know about your business, its structure and expected turnover, and what type of business insurance you are interested in.
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We explore the market
We will talk with you to learn more about your individual business and then explore the market for appropriate policies and prices.
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Find the right cover for you
We will show you the options and prices and, when you’re happy, we can put cover in place for your business protection.
Need to speak to someone about Key Person Insurance?
We’ve partnered with LifeSearch to give people even more guidance when buying life insurance. If you’d like some help deciding what kind of cover you need, talk to LifeSearch free of charge. Give them a call on 0800 197 8970.
Opening hours are:
Monday to Friday 8am to 8pm
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Is key person insurance tax deductible?
The proceeds of key person insurance will generally be taxable and the premiums tax deductible if the person insured is an employee of the business, the cover is taken out to a loss of profits resulting from the absence of the key person, it is an annual or short-term policy.
What are the disadvantages of key person insurance?
As with most types of insurance, the main disadvantage of key person insurance is that you will lose the money spent on premiums if you don’t have to make a claim. You will also lose out on any premiums paid so far should the individual insured decide to leave the company, even though you can cancel the policy at that time.
Can a sole trader have key person cover?
Yes. However, given there’s no distinction between a sole trader and their business, cover for this purpose is written as personal protection and does not qualify for business tax relief.
Do I need key person insurance?
Different businesses function in different ways, but if your company’s success is fundamentally linked to the presence of one or more individuals, key person insurance could provide a useful cash injection should any of those people die or become incapacitated.
Who can be a key person?
To take out key person insurance on an individual’s life, a business must have that person’s consent and must have a financial relationship with them. Insurers will also usually require some evidence of the person in question’s worth to the business.
What is the purpose of key person insurance?
Key person insurance is designed to pay out a lump sum on the death of the individual insured if they die within the term of the policy. The point of this payout is to compensate for the loss of their skills, experience, or business contacts.
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Reviewed on 25 Dec 2025 by
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