Protect your business from the financial impact of losing a key individual. Key person insurance pays your business a lump sum on death or critical illness, buying time and reassuring lenders and clients while you adapt.
A key person policy is owned and paid for by the business on the life of the key individual. If that person dies — or, where critical illness cover is included, is diagnosed with a specified serious condition — the business receives a lump sum. The money is the business's to use: replacing lost revenue, recruiting and training a successor, repaying borrowing, or simply stabilising cash flow through the disruption.
Unlike relevant life insurance, the beneficiary is the company itself, not the individual's family. The two products answer different questions — relevant life protects the family; key person protects the enterprise — and growing contractor businesses often need both.
The right amount of key person insurance depends on how much financial impact the loss of a key individual would have on your business. We consider several factors when recommending the appropriate level of cover.
Many businesses base cover on a multiple of the gross or net profit generated by the key person, helping replace lost revenue during recovery.
Another common method is using a multiple of the key person's salary or total remuneration to estimate their financial value to the business.
If a key individual supports company borrowing or personal guarantees, the cover can be matched to the outstanding loan balance.
Recruiting, training, and onboarding a suitable replacement can be expensive. Insurance helps fund these costs without disrupting cash flow.
The cover should provide enough financial breathing space to maintain operations, retain staff, and reassure clients while the business adapts.
Every business is different. We assess your profit, borrowing, business structure, and insurer underwriting limits to recommend a level of cover that is both realistic and justifiable.
A key person is anyone whose loss wouldmaterially damage the business's revenue, operations or creditworthiness.
The founder-director, a co-director with distinct skills, a senior technical employee delivery depends on, or whoever's named in client contracts as the deliverer.
If this person were suddenly absent for a year, what would it cost in lost profit, replacement costs and disruption? That number is the starting point for the sum assured.
The tax treatment of key person insurance follows long-standing HMRC principles: where the policy is short-term, on an employee, and purely to meet loss of profits, premiums may be deductible — but where premiums are deducted, payouts are generally taxable as trading receipts. Where premiums are not deducted, payouts are usually received tax-free.
For director shareholders, the deductibility position is more restrictive than for ordinary employees. The right structure depends on the purpose of the cover, and your accountant should be part of the conversation — we coordinate with them directly so the policy, the bookkeeping and the tax treatment line up from the start.
Lenders to small businesses — including the specialist lenders behind contractor company borrowing, commercial mortgages and practice loans — frequently require or strongly prefer key person cover on the principal directors. The cover assures the lender that the death of the person behind the business does not become a default on the loan.
Where the cover exists specifically to protect borrowing, business loan protection (a closely related product with its own page on this site) may be the cleaner structure. We advise on which instrument fits the obligation.
Usually not in the classic sense — if the company is you, a payout to the company on your death mostly benefits your estate indirectly, and relevant life insurance does that job more tax-efficiently and directly for your family. The honest answer for most solo contractors is relevant life first, income protection second, key person rarely.
The exceptions are real though narrow: company debts that would otherwise fall on a guarantor, contractual obligations that survive you, or a planned sale or succession where the company’s continuity has standalone value. We tell solo contractors when key person cover is genuinely unnecessary — and growing businesses when it has become essential.
The beneficiary. Key person insurance pays the business, protecting its revenue, borrowing and continuity. Relevant life insurance pays the individual's family through a trust. They answer different questions and are frequently held together in growing contractor businesses — one protecting the enterprise, the other the household.
Sometimes — broadly, where the policy is short-term, covers an employee rather than a major shareholder, and exists purely to protect profits. Where premiums are deducted, payouts are generally taxable; where they are not, payouts are usually tax-free. The optimal structure depends on the cover's purpose, and we work it through with your accountant rather than applying a one-size answer.
Common methods: up to two times gross profit or five times net profit attributable to the key person, up to ten times their remuneration, or the amount of borrowing they underpin. The honest starting question is what a year of their absence would actually cost. We size the cover from your figures and the insurer's financial underwriting limits.
Yes — and for working-age key people, critical illness is statistically the more likely event. A serious diagnosis that removes a key director from the business for a year can be as damaging as a death. Most key person arrangements we recommend include critical illness cover alongside life cover.
Usually not — for a company that is one person, relevant life insurance protects your family more directly and tax-efficiently, and income protection covers your earnings while alive. Key person cover earns its place when there are debts, guarantees, employees or business value that survive you. We will tell you plainly which side of that line you are on.
Many lenders require or prefer life cover on principal directors as a condition of business lending, commercial mortgages or larger facilities. Where the cover exists to protect a specific loan, business loan protection is often the more precise structure — we match the product to the lender's actual requirement.