Key man insurance vs life insurance: what's the difference?
Key man insurance, also called key person insurance, is owned and paid for by a business, and any payout goes to the business (Legal & General ↗).
Personal life insurance gives your dependants financial support if you pass away (MoneyHelper ↗).
Both insure a life; they protect different things.
This guide compares them on cost, pros and cons, and against relevant life and death in service.
For the business policy on its own, see key person life insurance.
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.
Key man insurance vs life insurance, at a glance
The difference is who takes out the policy, who pays for it and who receives the payout.
With key man insurance the company is both applicant and plan owner, and the key person is the life covered (Royal London ↗).
It owns the plan, pays the premiums and receives the proceeds (Royal London ↗).
With personal life insurance, you decide who will receive the payment (MoneyHelper ↗).
Two policies, two payees
Follow the money on a claim.
Key man cover pays the company, which can use it for lost profits, recruiting or training a replacement, or outstanding loans (Legal & General ↗).
A personal policy pays the people you chose.
If you don't name a beneficiary, MoneyHelper says the insurer pays the proceeds into your estate, which can take a long time to reach the person you want and could mean Inheritance Tax (MoneyHelper ↗).
The claim
A claim is made
If the insured person passes away. Key man cover can also pay on a serious illness, where critical illness cover was chosen.
Key man insurance
The insurer pays the business
For lost profit, a replacement or a loan.
Personal life insurance
The insurer pays who you chose
Directly, or through a trust if the policy was written into one.
No one named
The money goes into your estate
It can take longer to arrive and could face Inheritance Tax.
Key person insurance vs life insurance, in detail
Cover amount, tax, trusts and illness cover side by side.
For key man cover, HMRC allows premiums as a deduction only if the sole purpose is meeting a loss of trading income (HMRC ↗) and, for life cover, the policy is term insurance with no other benefits (HMRC ↗).
Where the premiums were deducted, the payout is trading income (HMRC ↗).
For a personal policy, MoneyHelper says a trust deed means the value of the policy is not considered part of your estate and can be paid outside probate and Inheritance Tax (MoneyHelper ↗).
Tax depends on your facts: check it with your accountant.
Key man insurance vs life insurance, pros and cons
Neither is better in general: each does one job well and leaves another undone.
The table sets out what each does, and what it does not, from the insurers', HMRC's and MoneyHelper's own descriptions.
The biggest limit of key man cover is also its purpose: the payout goes to the employer (Legal & General ↗), so the key person's family receives nothing from it.
The biggest limit of a personal policy is the reverse: it pays whoever you decide (MoneyHelper ↗), not the business.
Each cell summarises the linked source. Tax depends on your facts: check it with your accountant.
Key man insurance vs life insurance cost
We have not found a published source that compares the two prices, and the two examples here rest on different assumptions, so they cannot be set against each other.
The same things, such as age, health and how long the policy runs, move both prices (MoneyHelper ↗), but key man cover is sized to what the business would lose (Legal & General ↗).
- Key man cover · a broker's example
- Age 35: £7.26 a month, life cover only
- Age 45: £12.66 a month, life cover only
- Age 55: £26.78 a month, life cover only
Drewberry, a broker, not an insurer: £150,000 of level cover over 10 years, a healthy non-smoking company director with office-based duties, quotes accurate as of August 2025 (Drewberry (broker) ↗)
- Personal life cover · £25 a month buys
- Age 30: £563,838 of cover
- Age 40: £214,688 of cover
- Age 50: £75,521 of cover
Legal & General: non-smokers in good overall health, a 25-year policy, quotes taken on 13 March 2026 (Legal & General ↗)
Examples, not quotes. A price for you comes only from an insurer or an FCA-authorised adviser.
Key man life insurance, as a term policy
Key man life insurance is a life policy the company takes out on the key person: the company is the applicant and plan owner, and the key person is the life covered (Royal London ↗).
The kind of policy matters for tax.
HMRC allows the premiums as a deduction only if a life policy is term insurance that pays out only within the term, with no other benefits, for no longer than the person is useful to the company (HMRC ↗).
Whole life or endowment premiums are capital and not deductible (HMRC ↗).
Insurers publish the limits.
Aviva's Business Life Insurance Options takes life cover at ages 18 to 77, for a term of one to 50 years (Aviva ↗).
Legal & General takes key person life cover up to age 77 (Legal & General ↗) and up to £10 million, subject to underwriting (Legal & General ↗).
Owner
The company applies and owns it
The key person agrees to be the life covered, but does not own the policy.
Type
Term cover, nothing else
For a deductible premium, HMRC wants term insurance with no other benefits.
Term
As long as they matter
No longer than the key person is useful to the company, for the deduction.
Claim
The company is paid
The company receives the proceeds; no trust is needed.
When do you need each type?
Tick what you want the cover to do.
The needle shows which kind of policy matches those aims.
It is not a recommendation: an FCA-authorised adviser can tell you what suits your circumstances.
Nothing you tick is stored or sent.
Legal & General lists recruiting or training a replacement among the costs a key person payout could help with (Legal & General ↗).
That can include interim or fractional recruitment cover while a permanent replacement is found.
They answer different questions, so a business owner may look at both.
Tick what you want
The needle moves with each answer.
Keyman vs employer-paid employee life insurance
Employers pay for life cover on staff in several ways, and only one of them pays the business.
Death in service is an employee benefit that pays a tax-free cash sum if an employee passes away while on the company payroll (Legal & General ↗).
Legal & General says most UK employers offer between 2 and 4 times salary (Legal & General ↗), and that the cover ends when the employee leaves (Legal & General ↗).
The ATT says a death in service scheme is typically set up as a relevant life policy, with premiums normally tax deductible for the employer and generally not assessed on the employee as a benefit in kind (ATT ↗).
A group scheme must pay a capital sum if an insured person passes away under an age of no more than 75 to be an excepted group life policy (legislation.gov.uk ↗), and HMRC says a policy that pays the company is not one (HMRC ↗).
ATT and Royal London rows are their words, not HMRC's. Check each at its link.
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 ↗Key person cover, the deduction conditions and the payout
- HMRC Business Income Manual, BIM45560 ↗A sole trader’s cover on their own life
- Legal & General key person insurance ↗Who owns, pays for and receives key person cover; what it helps with
- Legal & General adviser guide ↗Sizing key person cover to earnings, profit or a loan
- Royal London technical guidance ↗The company as applicant and plan owner; no trust needed
- MoneyHelper: what is life insurance? ↗Personal life insurance: who is paid, trusts, Inheritance Tax and cost
- Royal London relevant life FAQs ↗Relevant life: who owns it, P11D and business expense
- Legal & General relevant life adviser guide ↗Its Relevant Life Plan is not for business protection
- HMRC Employment Income Manual, EIM15045 ↗The conditions for a relevant life policy
- Income Tax (Trading and Other Income) Act 2005, s481 ↗Excepted group life policies
- HMRC Insurance Policyholder Taxation Manual, IPTM7035 ↗Policies paying the company are not excepted group life policies
- Legal & General: death in service vs life insurance ↗What death in service pays, typical multiples, and leaving a job
- Association of Taxation Technicians ↗Back to basics: life insurance policies (August 2025)
- Legal & General Key Person Protection (adviser) ↗Maximum cover and entry ages
- Aviva Business Life Insurance Options policy summary (AL15005) ↗Entry ages and term
- MoneyHelper: how much does protection insurance cost? ↗What premiums depend on
- Drewberry (broker): keyman insurance cost ↗A broker’s key person premium example, August 2025. Not an insurer
- Legal & General life insurance ↗What £25 a month buys by age (personal cover, 13 March 2026)
Key man insurance vs life insurance, FAQs
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.