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Key person income protection, while they cannot work
Key person income protection (also called key man income protection) pays your business a monthly benefit if someone it relies on cannot work through illness or injury (Legal & General ↗).
This guide covers how it works, how it differs from life cover, the limits insurers publish and how HMRC treats 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.
Sources: Legal & General (Legal & General ↗) · increasing cover (Legal & General policy summary ↗)
Key person protection, three kinds of cover
Key person protection, also called key person cover or key man cover, is insurance a business takes out on someone it relies on.
HMRC describes it as a policy an employer takes out in its own favour against loss of profits from the death, critical illness, sickness, accident or injury of an employee, director or other key person (HMRC ↗).
Legal & General says key man insurance means the same thing (Legal & General ↗).
It comes in three forms.
Legal & General's adviser range lists key person life insurance, life insurance with critical illness cover, and Key Person Income Protection (Legal & General ↗).
The first two pay a lump sum; income protection pays a monthly benefit while the person cannot work (Legal & General ↗).
This page is about the third.
Legal & General's published limits, for one insurer's range; other insurers differ. Check each at its link.
What is key person income protection?
Legal & General says that if the employee covered becomes incapacitated through illness or injury and cannot work, it pays the business a regular monthly benefit.
The business can use it to fund a temporary replacement, protect profits or help with loan repayments (Legal & General ↗).
The test is the person's own job: its policy summary says it pays if they are unable to carry out the material and substantial duties of their own current occupation (Legal & General policy summary ↗).
HMRC's manual also counts sickness, accident and injury in the key person cover an employer takes out against loss of profits (HMRC ↗).
UK insurers paid a record £8 billion of group and individual protection claims in 2024, according to the ABI and GRiD (ABI ↗).
Set up
The business insures the key person
Someone whose absence would cost it profit.
Claim
They cannot do their own job
Through illness or injury, on the policy’s definition.
Wait
The deferred period runs
Four, eight, 13, 26 or 52 weeks at Legal & General.
Benefit
The business is paid monthly
For up to 12 or 24 months per claim at Legal & General.
Steps summarised from Legal & General (Legal & General ↗) and its policy summary (Legal & General policy summary ↗). Other insurers' terms differ.
Key person income protection vs life insurance
Both pay the business.
Key person income protection pays while the person cannot work (Legal & General ↗).
Key person life cover pays if they pass away, with critical illness cover if it was chosen (Legal & General ↗).
Legal & General sells both, alongside a critical illness option (Legal & General ↗).
They cover different events.
Whether a business needs one, the other or both is a question for an FCA-authorised adviser.
Figures are Legal & General's, for one insurer's products; check each at its link. Other insurers publish different limits.
How much cover insurers will consider
Legal & General allows up to 2.5 times the employee's earnings to meet the cost of a temporary replacement, or up to 75% of the gross profit attributable to them, each capped at £20,833 a month for level cover (Legal & General ↗).
Increasing cover has a lower cap of £14,583 a month (Legal & General policy summary ↗).
Royal London's maximum is 75% of the company's average gross profits attributable to the key person over the last three years, up to £250,000 a year (Royal London ↗).
Type your own figures to see each rule side by side.
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Legal & General key person income protection, from its policy summary
Legal & General publishes the terms of its Key Person Income Protection in a policy summary, so it can be read end to end.
We set it beside Royal London, the other insurer in our sources that publishes a key person income protection limit.
This is not a recommendation of either.
Two terms are worth knowing before any quote.
The test is the person's own job: Legal & General pays if they cannot carry out the material and substantial duties of their own current occupation.
And if they come back in a reduced role, it pays a proportion of the monthly benefit that takes account of the market salary for that role (Legal & General policy summary ↗).
Published terms, not an offer; underwriting decides. Check each at its link before you rely on it.
Key person income protection cost, and what drives it
We do not show prices, because we have no published source for them: a price comes from an insurer after underwriting the person and the business.
MoneyHelper's list of what affects the cost of personal income protection is shown here, with the deferred periods Legal & General offers on its key person policy.
- The person's age
- Their occupation
- Whether they smoke or have smoked
- How much income is covered
- The deferred period before it pays: the longer it is, the lower the monthly premiums
- The range of illnesses and injuries covered
- Their health, weight and family medical history
MoneyHelper's list, for personal income protection (MoneyHelper ↗)
Legal & General's deferred periods, key person cover- Four, eight, 13, 26 or 52 weeks
Check it in the policy summary: (Legal & General policy summary ↗)
Who needs key person income protection?
A business whose profits would fall while one person is off sick.
To insure someone as a key person, Legal & General says the business must be able to show it would lose profits in their absence (Legal & General ↗), and needs the person's agreement and a financial relationship with them (Legal & General ↗).
If you are a sole trader or partner, HMRC says premiums for sickness cover on yourself are not allowable deductions and the benefits are not trading income (HMRC ↗).
- Owner-operators
A director whose absence would stop the work coming in.
- Service businesses
Consultancies, agencies and firms where one person brings in the fees.
- Technical experts
A business that relies on one person's specialist skill or knowledge.
- Client-facing roles
Someone who holds the key client relationships.
Examples, not a test. The insurer decides whether a person counts as a key person.
Is key person income protection tax deductible?
HMRC allows a deduction for key person premiums only if the sole purpose is meeting a loss of trading income (HMRC ↗).
Whether that is met is a question of fact about what the directors were trying to achieve (HMRC ↗).
Where the premiums were deductible, what the policy pays is income of the trade (HMRC ↗).
Tax treatment depends on your facts.
Check it with your accountant before you rely on it.
Condition
The sole purpose is trade
Meeting a loss of trading income from the key person’s absence, not a capital loss.
Evidence
A question of fact
Decided on what the directors were seeking to achieve.
Result
Premiums deducted, benefit taxed
If the premiums were deductible, the benefit is trading income.
Summarised from HMRC's Business Income Manual, BIM45525 (HMRC ↗) and BIM45530 (HMRC ↗)
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.
- Legal & General Key Person Income Protection ↗Pays the business a monthly benefit while the key person cannot work
- Legal & General KPIP policy summary (LG2317) ↗Benefit limits for level and increasing cover, deferred periods, claim period, ages and term
- Legal & General adviser quick guide ↗Its key person range: life, critical illness and income protection
- Legal & General key person insurance ↗Who pays and receives key person life cover; showing a loss of profits; "key man" means the same
- Legal & General Key Person Protection (adviser) ↗Maximum life and critical illness cover, and entry ages
- Royal London business protection guide ↗Key person income protection limits
- HMRC Business Income Manual, BIM45525 ↗Key person cover, the sole-purpose condition and how payouts are taxed
- HMRC Business Income Manual, BIM45530 ↗The sole-purpose condition is a question of fact
- HMRC Business Income Manual, BIM45560 ↗Sole traders and partners insuring themselves
- ABI protection claims 2024 ↗Protection claims paid by UK insurers
- MoneyHelper: what is income protection insurance? ↗Deferred periods and what affects the cost of personal income protection
Key person income protection, 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.