Key person life insurance UK, protecting your business

Meets both conditions

Does not

Key person life insurance is a policy a business takes out on the life of someone it depends on, such as a director, owner or key employee.

Legal & General says the policy is owned and paid for by the employer, so any payout is payable to the employer.

Legal & General lists lost profits, recruiting or training a replacement and outstanding loans among the situations a payout could help with. Legal & General ↗

Insurers publish rules of thumb rather than a set amount.

Legal & General says cover can often be up to 10 times the key person’s earnings for life cover, or up to 5 times the net profit attributable to them.

Royal London gives up to 10 times gross salary, and Scottish Widows up to 10 times earnings.

Cover can also be the amount of a loan to be repaid if they pass away.

Underwriting sets the real limit. Legal & General adviser guide ↗

It can be.

HMRC’s manual says premiums are deductible only if the sole purpose is meeting a loss of trading income, not a capital loss, and, for life cover, the policy is term insurance with no other benefits.

Whether the sole-purpose condition is met is a question of fact.

Where premiums were deductible, the payout is income of the trade.

Check your own case with your accountant. HMRC BIM45525 ↗

Yes, where the business owns the policy and is paid.

HMRC describes key person cover 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.

Life cover an employer buys to pay an employee’s family, such as a relevant life plan, is a different product. HMRC BIM45525 ↗

It pays out if the key person passes away during the term.

Legal & General’s key person policy also pays on terminal illness, where life expectancy is less than 12 months, and critical illness cover can be added at the outset for an extra cost.

The company owns the policy and receives the payout. Legal & General ↗

From an insurer or an FCA-authorised adviser; this site does not quote.

Expect to show the business would lose profits without the person, and to get their agreement.

For larger amounts, insurers ask for financial evidence: Aviva asks for a full financial questionnaire above £2.5 million of life cover, and Zurich’s guide mentions audited accounts and a letter from the company accountant.

The FCA tells consumers to check a firm on its Firm Checker first. Aviva business protection ↗

No insurer we checked publishes a key person price.

One broker, Drewberry, publishes £7.26 a month at 35, £12.66 at 45 and £26.78 at 55 for £150,000 of level life cover over 10 years, for a healthy non-smoking company director with office-based duties, accurate as of August 2025.

Your price comes only from a quote. Drewberry (broker) ↗

A business whose profits rest on one person: a founder who wins the work, a director a lender relies on, or an employee with skills nobody else has.

Legal & General says the business must be able to show it would lose profits in the key person’s absence to insure them, and needs a financial relationship with that person.

Whether to buy cover is a decision for the business, ideally with an FCA-authorised adviser. Legal & General ↗