Key Person Insurance UK

Key person insurance (also known as keyman insurance or key man insurance) is a life insurance policy taken out by a business on the life of an essential employee, director, or owner. If that key person dies or becomes critically ill, the policy pays out a lump sum to the business to help cover financial losses, recruit a replacement, or repay debts.

Key person insurance costs vary based on the key person's age, health, cover amount, and policy term. Typical premiums range from £20-£100+ per month for £100,000-£500,000 of cover. Younger, healthier individuals cost less to insure. The average UK business pays around £30-£60 per month for adequate key person protection. See our full cost guide.

Key person insurance premiums may be tax deductible as a business expense if the policy meets HMRC criteria: it must be solely to benefit the business, cover loss of profits (not loan protection), and the key person must be an employee. If the payout is to cover trading losses, it's typically taxable as trading income. Read about tax treatment.

Key person insurance is essential for businesses that rely heavily on specific individuals - founders, directors, top salespeople, or employees with unique skills or client relationships. SMEs, startups, partnerships, and family businesses are particularly vulnerable to the loss of key personnel. If losing someone would significantly impact revenue, client retention, or operations, key person cover is recommended.

Key person insurance pays out to the business to cover financial losses when a key employee dies or becomes ill. Shareholder protection insurance pays out to surviving shareholders/partners to buy the deceased's shares from their estate, preventing shares going to family members or outsiders. Many businesses need both types of cover for complete protection.

Calculate key person insurance cover based on: the person's contribution to profits (typically 2-5x their annual profit contribution), cost to recruit and train a replacement (6-24 months salary), any loans or debts secured against them, and client relationships at risk. Most UK businesses insure key people for £100,000-£1,000,000 depending on their role and company size.

Yes, key person insurance can include critical illness cover as well as life cover. This pays out if the key person is diagnosed with a specified serious illness (cancer, heart attack, stroke, etc.) that prevents them working. Combined life and critical illness key person policies provide more comprehensive protection for your business.

If a key person leaves the company, you have several options: cancel the key person insurance policy and stop paying premiums, transfer coverage to a new key person (subject to underwriting), convert to personal cover for the individual, or maintain the policy if they might return. Most businesses cancel and take out new cover on their replacement.