Key Person Insurance
Protect the People Who Power Your Business
Every business has that one individual, or a few, whose knowledge, leadership, or relationships are irreplaceable. What would happen if they were suddenly no longer around? That’s where Key Person Insurance (also known as Keyman Insurance) comes in.
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What Is Key Person Insurance?
Key Person Insurance is a life insurance policy that a business takes out on the life of an essential employee, typically a director, founder, or specialist, whose absence due to death or critical illness would cause significant disruption to the business.
If the insured individual dies or suffers a serious illness, the business receives a lump sum payout. This money can be used to maintain operations, replace lost revenue, recruit and train a replacement, or pay off debts.
This cover is especially vital for SMEs, startups, and family-run businesses that rely heavily on one or two key individuals.
Any company with team members that are crucial to its success should consider this cover. Common examples include:
- Company founders and co-founders
- Managing directors
- Lead developers or technical specialists
- Top salespeople
- Key relationship managers
- Senior partners
If losing an individual would cause operational, financial, or reputational damage, they are likely a key person.
The primary benefit of key person insurance, from a tax efficiency perspective, is that it helps protect a business financially while minimising tax disruption after the loss of a critical individual.
In many cases, the insurance proceeds can be received tax-free, allowing the company to cover lost revenue, recruit and train a replacement, or stabilise operations without creating an immediate tax burden.
This tax-efficient payout helps preserve cash flow and supports business continuity during a financially vulnerable period.
Key Facts in 90 Seconds
Don’t wait until it’s too late to find out who your most important employees are. Watch our video to see why Key Person Insurance is an essential business expense.
The Benefits of Key Person Cover
1. Tax-Efficient Payout
Key person insurance can provide a tax-advantaged payout, helping your business cover lost revenue or hire a replacement without creating an immediate tax burden.
2. Business Continuity
The insurance funds help stabilise operations after the loss of a key individual, ensuring the company can continue running smoothly.
3. Recruitment and Training Support
Proceeds from the policy can be used to recruit, hire, and train a replacement, minimizing disruption to the team and workflow.
4. Financial Security
It protects the business from unexpected financial strain, giving owners peace of mind knowing critical roles are insured.
How does Key Person Work?
Key person cover is a life insurance policy that a business takes out on the life of a key employee, partner, or executive whose loss could significantly impact the company’s operations or finances.
The business pays the premiums and is the beneficiary of the policy. If the insured individual passes away or becomes critically ill, the policy pays out a lump sum to the business. These funds can be used to cover lost revenue, recruit and train a replacement, pay off debts, or stabilize the company, helping ensure continuity and financial security during a challenging transition.
Losing a critical team member affects more than just your bottom line. It could threaten client relationships, stall projects, and lower team morale.
According to research from Legal & General:
- 59% of SMEs would cease trading within 12 months of losing a key person.
- Only 12% of businesses have Key Person Insurance in place.
- Immediate financial protection for the business
- Reassurance for staff and stakeholders
- The ability to continue trading during turbulent times
You have a few options:
- Let the policy lapse by stopping premium payments
- Continue the policy to term
- Transfer ownership to the key person
If the policy is written in trust (especially in partnerships), ownership may revert automatically.
Any company with team members that are crucial to its success should consider this cover. Common examples include:
- Company founders and co-founders
- Managing directors
- Lead developers or technical specialists
- Top salespeople
- Key relationship managers
- Senior partners
If losing an individual would cause operational, financial, or reputational damage, they are likely a key person.
Whether you’re a sole trader, startup founder, or an SME director, Key Person Insurance UK options are tailored for companies of every size. Even if you’re a team of one, you can cover yourself and ensure your business continues if illness or injury strikes.
Key Person Insurance for Directors, Partnerships, and Contractors are also available with flexible plans, ensuring your structure is protected no matter your setup.
- Paying wages and suppliers during a revenue dip
- Settling outstanding loans and debts
- Funding the recruitment of a replacement
- Supporting business continuity
- Providing employee or family support
- Protecting investor confidence
While traditional life insurance pays out to an individual’s family, Key Person Insurance is designed to protect the business. It’s about safeguarding your company’s future—not just offering personal protection.
Some policies include Key Person Life Cover with Critical Illness, providing comprehensive support for your business in case of serious health issues.
Many policies now include Key Person Insurance Critical Illness Cover, which provides a payout if the insured is diagnosed with a serious condition. With the average critical illness claim age being just 47, this addition is essential to protect against early, unexpected setbacks.
Ask yourself:
- How much revenue does the person generate?
- Could you afford to replace them quickly?
- Would losing them impact business loans or investor confidence?
- Would your team and client relationships suffer?
We can help you assess the right level of protection. Use our Key Person Insurance Calculator or speak with a Broadbench adviser for a personalised recommendation.
Yes, this cover is also referred to as:
- Keyman Insurance
- Key Person Cover
- Key Person Life Insurance
- Key Person Protection Policy
- Keyman Insurance for SMEs
This type of insurance is increasingly popular across the UK, especially among small businesses and partnerships. It provides both financial support and business continuity at a time when the company needs it most.
Don’t wait until it’s too late. Get tailored Key Person Insurance Quotes, compare Key Person Insurance Cost UK, and find the best policy to protect your most valuable business assets—your people.
Let us help you navigate:
- Key Person Insurance for Startups
- Keyman Insurance Premiums for SMEs
- Key Person Cover Cost with or without critical illness
- Key Person Insurance Policy Trusts and HMRC implications
It’s a small cost now should the worst happen in the future
As a business expense, Key Person Insurance is a small price to pay for the peace of mind it provides. By covering essential employees, you can be safe in the knowledge that your business will be able to continue should you lose someone crucial to the company.
Take Our Risk Assessment
Our Key Person Risk Assessment Calculator helps you measure how much of your business’s revenue and stability depends on a single individual — and what it might cost to replace them.
It only takes a few minutes, and your results could reveal risks you haven’t considered — or help confirm you’re on solid ground.
Risk Assessment
Key Person Insurance Cost
Costs vary depending on:
- Age and health of the key person
- Amount of cover
- Term length
- Whether critical illness cover is included
Your Broadbench adviser will use a Key Person Insurance Calculator to estimate your premiums. In general, Keyman Insurance Price is a modest business expense compared to the potential losses of not having it.
Looking for cheap Key Person Insurance or want to compare policies? We offer competitive Key Person Insurance Quotes from top-rated Key Person Insurance Providers in the UK.
What are the Tax Facts?
According to HMRC guidelines:
- Premiums may be tax-deductible if the policy is used solely to cover loss of trading income (not capital losses or benefits).
- For policies where the business is both the policyholder and beneficiary, tax relief may apply.
- Key Person Insurance HMRC rules are complex—our advisers will guide you based on your specific circumstances.
For partnerships, policies should be written in trust, as partnerships lack legal identity.
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs’ practice. Levels and bases of tax relief are subject to change.
FAQs
Who is a key person?
A key person is an individual whose skill, knowledge, experience or leadership contributes to the continued financial success of the business. A key person may be anyone whose death could lead to a financial loss for the business.
This might be a loss of profits if you lost your best salesperson, the cost of having to recruit or train a replacement or important personal or business contracts lost due to the key person not being there to maintain a contract.
Can partners take out Key Person cover on each other?
Yes, a partner could take out their own life policy and place it under trust for the other partners. In the event of a valid claim the policy proceeds would be payable to the trustees who would in turn pay the partners as beneficiaries of the trust. The partnership would usually pay the premiums.
What happens if the key person leaves or retires?
If a key person were to leave or retire before the end of the Key Person Protection policy term, the business could stop paying the premiums allowing the policy to lapse. Alternatively, the company may choose to continue paying the premiums until the end of the policy term and in the event of a claim, the business would receive a capital sum.
Who should be covered by Key Person Insurance?
The obvious choice of key person will normally be some or all of the partners or members in the business. However, it is worthwhile to consider the impact on the business of losing someone who may not have any financial stake in the business but nevertheless plays a fundamental role in its success.
Consider the individuals within your business and ask yourself:
- Would the loss of that person negatively impact or slow down any ongoing projects?
- How easy would it be to replace that person’s expertise?
- Is that individual essential to your business growth?
- Would the loss of that person detriment any customer or supplier relationships?
- Would the business miss their contribution?
- Are there any financial matters, such as bank loans that are dependent upon that key person?
If I don’t take out Key Person Insurance what are the consequences?
The consequences of losing a key person vary on the role of that individual and your business model. There are common factors to consider though, such as without the leadership of you or your key person your employees may decide it’s time for them to move on. Perhaps your customers may choose to go elsewhere and/or your sales revenue could fall. Potentially it could create a lack of confidence from your lender, suppliers, customers, and your other employees. Bank loans and overdrafts could be called in and your suppliers may demand payment upfront.
How likely is it that a Key Person will need to Claim?
Likelihood of a Critical Illness – Likelihood of at least one partner or director getting a critical illness before age 65 Source CIBT02 Based on 1971-2003 population data and experience, published in SIAS paper Exploring the critical path, 2006. Males’ standalone, extended cover, including own occupation total and permanent disability.
Likelihood of Death – Likelihood of at least one partner or director dying before age 65 Source www.actuaries.org.uk. Based on mortality data from TMNOO (temporary assured lives, male non-smokers, 1992-2002) at five plus years duration.
How much should I insure my key people for?
There are no hard and fast rules when assessing the financial value of a key person. Each key person must be dealt with on their own merits. A primary method of calculating the key person’s worth is as a multiple of the company profits, the standard multiples are 2 x gross profit or 5 x net profit.
Alternatively, some firms calculate the value as a multiple of that person’s salary. Up to ten times gross salary may be considered for a rapidly expanding business.
Your Broadbench adviser will guide you through this calculation.
What’s the tax position for Key Person Insurance?
Typically, tax relief is not allowed as in nearly all cases the key person being insured is a major shareholder of the business. Just because the policy may not qualify for tax relief does not mean that the company should not take key person insurance. It just means they will not get tax relief on the premiums.
Is it time to cover your key people?
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