- Home
- Business protection
- Small business
Key person insurance for small business, where one person matters
Key person insurance for small business helps a small firm stay steady, with money for lost profit, recruiting a replacement or an outstanding loan (Legal & General ↗).
It pays the business if someone it relies on passes away or, with critical illness cover, is seriously ill (Legal & General ↗).
In a small firm the owner, the top seller or the one person who knows the systems can carry much of the profit.
This guide covers who to insure, how cover is sized and how it is taxed for each type of business.
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.
Source: Legal & General (Legal & General ↗)
Why small businesses need key person insurance
Legal & General says a larger company may have greater resources and the ability to substitute key staff with other personnel (Legal & General ↗).
A small firm often cannot, which is where cover can buy time to recruit.
Tick what applies to your business.
The needle shows how concentrated the risk is.
It is a prompt for thought, not advice, and nothing you tick is stored or sent.
Tick what applies
The more you tick, the more the business rests on one person.
How much it costs for small businesses
We do not publish premiums, and we found no insurer that publishes a key person rate to quote.
For life insurance in general, MoneyHelper lists what sets the price (MoneyHelper ↗); the amount of cover is one of the factors, so sizing it honestly matters.
Aviva says that if it cannot decide an application straight away, it covers the client for up to £1,000,000 of free life cover while it looks into the case (Aviva ↗).
- Your age
- Your health
- Your lifestyle
- Whether you smoke
- Your family medical history
- The length of the policy
- Your occupation
- The level of cover you buy
From MoneyHelper's guide to life insurance in general, not a key person price list (MoneyHelper ↗). We publish no premiums: we found no insurer that publishes a key person rate.
Who small businesses should insure
Legal & General says a key person could be anyone crucial to the day-to-day running of the company, such as a director, an employee or anyone whose skill, knowledge and experience affects revenue (Legal & General ↗).
Royal London says shareholding is not necessarily a good indicator: a non-shareholding employee could easily be key (Royal London ↗).
- Owner/founder
- CEO
- Operations manager
- IT manager
- Web developer
- Sales lead
- Employees with lots of contacts
- Exceptional talents
Legal & General's list of roles that are typically covered by key person insurance, quoted as it publishes it (Legal & General ↗). Anyone can be key if the business would lose profit without them.
Small business cover amounts
No insurer publishes amounts for small businesses, and we do not estimate one.
The methods are the same at any size.
Royal London calls profit the main way to value a key person (Royal London ↗).
Legal & General routinely averages the last 2 years' profit (Legal & General ↗).
Cover can also be set at a loan the business would need to repay if the key person passed away (Legal & General ↗).
Company, partnership or sole trader
Who can own the policy depends on the legal form of the business.
Aviva says its business life policy is available to limited companies, LLPs, individual partners and sole traders (Aviva ↗).
Rows summarise how the insurers and HMRC describe each structure; check each at its link. Aviva says its business life policy is available to limited companies, LLPs, individual partners and sole traders (Aviva ↗).
How small business cover is taxed
HMRC allows the premiums only if the sole purpose is meeting a loss of trading income, not a capital loss (HMRC ↗).
Where both conditions are met, the payout is trading income, for a company and for an unincorporated business (HMRC ↗).
A sole trader's or partner's cover on themselves is not deductible (HMRC ↗).
Summarised from HMRC's Business Income Manual. Whether the sole-purpose condition is met is a question of fact (HMRC ↗); check your case with your accountant.
Getting started
Insurance is the last step.
Map what the business depends on first, then match each gap to the cover built for it.
Map
Find who the profit depends on
Clients, knowledge, borrowing and ownership that rest on one person.
Reduce
Remove what you can
Documentation, shared access and named deputies.
Size
Put a number on what is left
Profit, earnings or a loan, with the multiples insurers publish.
Tax
Check the treatment with your accountant
It depends on the purpose, the person and your business form.
Check
Use an authorised firm
The FCA tells consumers to check a firm on its Firm Checker first.
Sources: Legal & General (Legal & General ↗), HMRC (HMRC ↗), the FCA (FCA ↗).
Claims, and how they pay
The ABI named two common reasons claims were declined: existing medical conditions not disclosed, and policy definitions not met (ABI ↗).
Full, accurate answers on the application deal with the first.
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 insurance ↗Who a key person is, the roles typically covered, what a payout helps with
- Royal London: companies, key person protection ↗Who is key, sizing methods, start-ups, venture capital and loans
- Royal London: partnerships, LLPs and sole traders ↗Who can own the plan, trusts, and tax for unincorporated businesses
- LV= key person cover ↗How cover is set up for each type of business
- Aviva Business Life Insurance Options ↗Who the policy is available to, and what it is for
- Legal & General adviser guide ↗Earnings, profit and loan methods for sizing cover
- HMRC Business Income Manual, BIM45525 ↗The two conditions for deducting key person premiums
- HMRC Business Income Manual, BIM45560 ↗Sole traders and partners insuring themselves
- MoneyHelper: what is life insurance? ↗What sets the price of life insurance, including occupation
- ABI protection claims 2024 ↗Claims paid, and the common reasons claims were declined
Small business cover, 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.