Loss of profits
To help offset lost income while the business adjusts
Key person life insurance
Get cover for pivotal employees in your business.
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What is key person insurance?
Key person insurance, sometimes known as key man insurance, ‘business life insurance’ is a specialist form of life insurance designed to protect a business if someone crucial to its operation dies. This could be an owner, director or employee whose death could have a significant financial impact on the business. They may, for example, have specialist skills or may be responsible for a significant share of the company’s revenue.
How does it work?
Key person insuranceis taken out by a business, rather than an individual. The business pays the premiums, and if a claim is made, it receives any lump-sum payout.
The policy covers the person identified as being key to the business. If they die during the policy term – and the claim is approved – the policy will pay out and the cover will end.
There’s also the option to add critical illness cover. This will pay out if the key person is diagnosed with a specific critical illness covered by the policy.
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 should an important individual die or become critically ill.
It does this by providing a cash injection when you need it most. This can give the business time to adapt and manage the financial impact of the loss.
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, and whose death could have a significant financial impact on the business.
This may, for example, be someone who makes high-level decisions, or someone who is responsible for your main revenue stream. It could be someone who has specialist skills or expertise, or who is responsible for important customer relationships.
When should I take out key person insurance?
There’s no set time to take out key person insurance. However, it may be worth considering if your business relies heavily on one or more individuals – particularly if they have specialist skills or are responsible for a significant share of your revenue.
How do I set up a key person insurance policy?
With key person insurance, the business takes out a policy on the life of the person considered ‘key’ to its financial success.
For a limited company, the company is usually the owner of the policy and pays the premiums. If a claim is made, the payout is made to the business.
The person covered will need to agree to the policy. The business will also usually need to demonstrate that it would suffer a financial loss if that person were to die or become seriously ill.
As the exact arrangements can differ, depending on the type of business and policy, it’s worth taking professional advice when setting up cover.
What types of key person insurance can I get?
Common types of key person insurance include:
Key person life insurance
Pays a lump sum to the company if the employee dies during the policy term
Key person critical illness cover
Pays a lump sum to the business if the employee is diagnosed with a specified critical condition covered by the policy, such as a heart attack, cancer, or stroke.
What does key person insurance cover?
Key person insurance can provide a financial safety net if a business loses someone who is crucial to its success. The policy may pay out if the key person dies, or, if this is included in the policy, that individual is diagnosed with a specific critical illness.
The business can then use the payout to manage the financial impact, such as:
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Recruitment and training costs
To help cover the cost of finding and training a replacement
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Business borrowing
To help meet or repay business borrowing, where appropriate
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Loss of existing contracts or relationships
To help manage the financial impact of losing important customers or business relationships
What are the advantages and disadvantages of key person cover?
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Advantages
Provides a financial safety net – a payout can help the business manage the financial impact of losing a key person, including lost income and the cost of finding a replacement
Helps the business adapt – the money can give the business time to recruit and train a replacement, manage customer relationships and adjust to the loss of an important employee
Can support business continuity – having cover in place can reduce the financial pressure on a business at a difficult time
May help with business borrowing – depending on the circumstances, the payout could be used to help meet outstanding financial commitments
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Disadvantages
Premiums are an ongoing cost – the price can vary depending on factors such as the person’s age, health, occupation, the level of cover and the length of the policy
It can be difficult to put a value on a key person – working out how much cover the business needs isn’t always straightforward, particularly where the person’s value comes from specialist knowledge, leadership or customer relationships
Cover doesn’t replace the person – a payout can help with the financial impact of losing a key employee, but it cannot replace their expertise, experience or relationships
There may be policy exclusions and conditions – exactly when a policy will pay out depends on its terms, so businesses should check what is and isn’t covered before taking out a policy
What impacts the price of key person insurance?
The cost of key person insurance will depend on the level of cover you need, and the circumstances of the person being insured.
Level and type of cover
The amount of cover you take out will affect the premium. If you decide to add features such as critical illness cover this can also increase the cost.
Age
Generally speaking, the older the person being insured, the higher the premium is likely to be.
Health and lifestyle
The insurer will usually ask about the individual’s health, medical history and lifestyle. Factors such as smoking can affect the price of cover.
Occupation
The person’s job can have an impact on the premium, and particularly where it involves higher levels ‘higher risk’. For example, some jobs which involve working at height or in hazardous environments may be treated differently by insurers.
Length of the policy
The term of the policy can also affect the cost. The longer the period of cover, the more you can end up having to pay.
How much key person cover do I need?
There’s no ‘set amount’ of key person cover someone will need. The amount required will depend on how much the business could lose if that individual died or became seriously ill.
As a guide:
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Revenue-generating key person
A common calculation is 20% of twice the company’s annual gross profit
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Non-revenue-generating key person
For someone such as a finance director, insurers may offer cover of around 20% of five times the company’s annual net profit
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Replacement cost
Another way to calculate the amount of cover needed for a particular individual, is by considering the cost of replacing that employee. A common rule of thumb is to allow for 10 times their annual salary
Our expert says…
Key person life insurance can provide a financial safety net if a vital employee dies. The payout can help a business cover the cost of finding and training a replacement, while protecting cash flow and helping it continue to operate.
Saarrah Mussa Former Content Writer
Related guides on life insurance and other types of protection insurance:
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Why compare key person 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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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.
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Is key person insurance tax deductible?
In some circumstances, premiums for key person insurance may be tax deductible. This generally depends on factors including who is insured, the purpose of the policy, and the length of the cover. Any payout may also be taxable. It’s worth speaking to a tax adviser about your specific circumstances.
Can a sole trader have key person insurance?
Yes. A sole trader can take out life insurance to protect their business; just be aware that the rules are different from those for a limited company. Given that a sole trader – and their business – are legally the same, the policy is generally treated as personal insurance, rather than business insurance.
Can I have key person insurance for more than one employee?
Yes. A business can take out key person insurance on more than one employee if each person is considered important to the business, and their death or serious illness could cause a financial loss.
Do I need key person insurance?
There’s no requirement for every business to have key person insurance. That said, it could be worth considering if your business relies heavily on one or more individuals whose death or serious illness could have a significant financial impact.
How long does key person insurance last?
The length of a key person insurance policy will depend on the needs of the business and the type of cover chosen. Policies are usually taken out for a fixed term, and the business should review its cover if the key person’s role – or circumstances – change.
Can I insure myself with key person insurance?
Yes. A business owner or director can be a key person if their death could cause a financial loss to the business.
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Reviewed on 6 Oct 2026 by
Sources and supporting information
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[1]
Prepaid Mastercard value varies based on the first monthly premium of the policy and will be confirmed on the results page, T&Cs apply
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[2]
Use your card everywhere Mastercard is accepted. Mastercard is a registered trademark and the circles design is a trademark of Mastercard International Incorporated. This card is issued by Transact Payments Limited pursuant to licence by Mastercard International. Transact Payments Limited is authorised and regulated by the Gibraltar Financial Services Commission.
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[3]
YouGov Survey 1st July 2024 to 30th June 2025. Net Recommend score derived from “Which of the following online service websites would you recommend to a friend or colleague, or tell them to avoid?” Base: Current Customers of (MoneySuperMarket n=18,382, Compare the Market n=16,802, Go.Compare n=10,162, Confused.com n=8,229, Uswitch n=528).
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[4]
The number of providers for life insurance in November 2025
