Do I need key person insurance? Tick what applies
Do I need key person insurance? It turns on how much of the business rests on one person.
HMRC describes key person cover as a policy an employer may take out against loss of profits from losing an employee, director or other key person (HMRC ↗).
This guide sets out the signs, who can be covered and how to weigh it.
Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.
- The person's agreement to be covered (Legal & General ↗)
- A financial relationship with them (Legal & General ↗)
- A loss of profits the business can show in their absence (Legal & General ↗)
Legal & General's conditions. Check them at the link.
Do I need key person insurance? The key facts
Key person cover is owned and paid for by the employer, and any payout goes to the employer (Legal & General ↗).
It exists to meet a loss the business would suffer, so the question is less “is this person important?” than “what would the business lose without them?”
- A choice
HMRC describes a policy an employer may take out in its own favour (HMRC ↗).
- Pays the business
The employer owns it, pays for it and receives any payout (Legal & General ↗).
- Needs a loss
The business must be able to show a loss of profits in the person's absence (Legal & General ↗).
- Needs consent
The person must agree, and the business needs a financial relationship with them (Legal & General ↗).
- Sized to the loss
Royal London says total life cover should not be more than the greater of 10 times salary package or five times average net profit (Royal London ↗).
- What owners believe
59% of businesses believe they would stop trading within a year of losing a key individual, in Legal & General's research (Legal & General ↗).
The last card is a belief survey, not a measured failure rate. Check each card at its link.
Signs your business may need key person insurance
Legal & General defines a key person as an individual whose skill, knowledge, experience or leadership contributes to the continued financial success of the business (Legal & General ↗).
Its technical guide lists the losses cover can help with; they are the signs shown here.
Tick the ones that are true of one person in your business.
The needle counts them; it is not a recommendation.
Nothing you tick is stored or sent.
Tick what applies
Think of one person. The needle moves with each answer.
Signals from Legal & General's technical guide (Legal & General ↗).
When key person insurance may not be necessary
Key person cover meets one kind of loss: the business's.
If no one's absence would cost the business profit, an insurer has nothing to cover, because the business must show that loss to insure someone (Legal & General ↗).
Often the worry is a different one.
Money for a family is relevant life cover, which pays through a trust (Royal London ↗).
Keeping the shares with the people running the business is shareholder protection, backed by a cross option agreement (Royal London ↗).
A sole trader's cover on their own life is not a deductible expense (HMRC ↗), though insurers do sell business life cover to sole traders (Aviva ↗).
Who should be covered by key person insurance?
HMRC's manual covers an employee, director or other key person (HMRC ↗).
Royal London describes a key person as someone whose absence, through death, critical illness or disability, would have a serious effect on the future profits of the business (Royal London ↗).
It is the loss that matters, not the title: the roles shown here are Legal & General's examples.
One tax point: HMRC lists cover only on directors who are major shareholders, and not other employees, as a circumstance that may point to a non-trade purpose (HMRC ↗).
See the tax guide before you choose whom to cover.
- Example role
Chairman
Leadership the business depends on.
- Example role
Managing director
The person running the business day to day.
- Example role
Sales manager
The person who wins and keeps the revenue.
- Example role
Marketing manager
The person behind how customers find you.
- Example role
Computer specialist
Technical knowledge that is hard to replace.
Roles named by Legal & General (Legal & General ↗); the one-line glosses are ours.
How to decide: a simple test
Four questions, each taken from what insurers and HMRC say a key person policy is for.
If the answer to the first is no, key person cover is not the tool.
If the answers point to cover, the amount comes next.
Legal & General bases it on the loss of profits, or on a loan the business would need to repay if the key person passed away (Legal & General ↗); the calculator works through those methods.
Profit
Would profits fall without them?
The business must be able to show a loss of profits in their absence to insure them.
Consent
Do they agree, and is there a financial relationship?
Insurers need the person’s agreement and a financial relationship with them.
Debt
Is there a loan to repay?
A loan to repay if they passed away is one basis insurers use for the amount.
Amount
What would the loss be?
Size it by earnings, profit or the loan before you ask for a quote.
From Legal & General (Legal & General ↗) (Legal & General ↗) (Legal & General ↗).
Next steps, if you think you need it
We do not quote or recommend a provider.
Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗).
These guides help you arrive with a number and the right questions.
- How much cover
Key person insurance calculator
The earnings, profit and loan methods UK insurers publish, with your own figures.
Read the guide → - Before insurance
Key person risk
Spot where the business depends on one person, and reduce it.
Read the guide → - What drives the price
Key person insurance cost
The factors insurers and MoneyHelper name, and published examples.
Read the guide → - Insurers side by side
Compare cover options
What UK insurers publish about their key person cover, with sources.
Read the guide → - The whole set
Business protection insurance
Key person, shareholder, loan and director cover, policy by policy.
Read the guide → - The basics
What is key person insurance?
Who owns it, who is paid and what it pays for.
Read the guide →
Check it for yourself
Every claim on this page is our summary of one of the documents listed here.
We last checked them against the live sources on 28 September 2026.
The documents are the authority, not this page.
Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.
- HMRC Business Income Manual, BIM45525 ↗What key person cover insures against
- HMRC Business Income Manual, BIM45530 ↗Circumstances that may point to a non-trade purpose
- HMRC Business Income Manual, BIM45560 ↗Sole traders and partners insuring themselves
- Legal & General key person insurance ↗Owner, payee, consent and the loss-of-profits test
- Legal & General Key Person Protection technical guide ↗Who is a key person, and the losses a business can face without them
- Royal London: business protection tax implications ↗Royal London’s definition of a key person
- Royal London business protection guide ↗The ceiling on total key person life cover
- Royal London shareholder protection guide ↗Cross option agreements
- Legal & General Executive Income Protection ↗Cover that funds an employee’s sick pay
- Aviva Business Life Insurance Options ↗Business life cover for companies, LLPs, partners and sole traders
- MoneyHelper: the cost of protection insurance ↗What premiums depend on
- Royal London relevant life FAQs ↗Relevant life pays the family through a trust
- FCA: check a firm is authorised ↗Use the Firm Checker before buying insurance
Do I need key person insurance? Answered
Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.