keyperson.questCompare providers
  1. Home
  2. Business life insurance
  3. Life insurance for small business

Life insurance for small business, three questions

Life insurance for small business owners keeps three things secure: the business, your family and your co-owners.

Would the business need money to keep going without you?

Would your family?

Would your co-owners want to buy your shares?

Each answer points to a different policy.

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.

Who needs the money? ↓By business type →
01 · Key facts

Life insurance for small business: key facts

Six points for small business owners.

Each is our summary of a named source, linked beside it.

Key person insurance for small business →
  1. In Legal & General's own research, 59% of businesses believe they would have to stop trading within a year of losing a key individual (Legal & General ↗).
  2. Key person cover is owned and paid for by the employer, so any payout goes to the employer (Legal & General ↗).
  3. A relevant life plan is paid for by the employer and pays the employee's or director's family through a trust (Royal London ↗).
  4. A cross option agreement gives surviving shareholders the option to buy a shareholder's shares (Royal London ↗).
  5. Aviva sells one business life policy to limited companies, LLPs, individual partners and sole traders (Aviva ↗).
  6. A sole trader's or partner's premiums for cover on themselves are not deductible (HMRC ↗).
02 · What you need

What life insurance does a small business need?

In a small business a few people usually carry the clients, the knowledge and the borrowing.

So the first question is not which policy, but who would need the money if one of them passed away.

Pick an answer and the card shows the policy built for it.

We do not recommend one: an FCA-authorised adviser can tell you what suits your business.

What is key person insurance? →Relevant life insurance →Shareholder protection →

Who would need the money?

Pays the business

Key person insurance

Key person insurance explained →
03 · Tax

Tax advantages for small businesses, with conditions

Key person premiums can be deductible, but only if the sole purpose is meeting a loss of trading income (HMRC ↗)and a life policy is term insurance with no other benefits (HMRC ↗).

In a small company the directors often own the shares, and HMRC lists a policy on major-shareholder directors as one that may have a non-trade purpose (HMRC ↗).

If you are a sole trader or partner, premiums for cover on yourself are not deductible (HMRC ↗).

Check your own position with your accountant.

Key person insurance tax →

Key person

Relevant life

Shareholder protection

Premiums
Deductible only if the sole purpose is trade (HMRC ↗) and, for life cover, it is term insurance with no other benefits (HMRC ↗)
Generally a business expense if paid wholly and exclusively for the business, in Royal London's view (Royal London ↗)
Depends on the structure: check with your accountant
Benefit in kind
Not the employee's policy: the company owns it (Royal London ↗)
Not a P11D benefit, says Royal London (Royal London ↗)
Depends on the structure: check with your accountant
Payout
Trading income, where the premiums were deducted (HMRC ↗)
Outside the EFRBS charge (HMRC ↗); held in trust, not part of the employee's estate, says Royal London (Royal London ↗)
Business property relief still available under a cross option agreement, says Royal London (Royal London ↗)
Swipe to compare
04 · By business type

Small business life insurance: what you need and when

What is open to you depends on how the business is set up.

A sole trader has no company to own a policy; a limited company does; co-owners add the question of who buys the shares.

The table sets out what the insurers and HMRC say for each.

Sole traders →Partnerships →Limited company life insurance →

Sole trader

Ltd, one director

Ltd, several owners

Partnership or LLP

Key person cover
Aviva's business policy is available to sole traders (Aviva ↗)
If the business would lose profits without you (Legal & General ↗)
Owned by the company, which is paid (Royal London ↗)
LV= says its cover pays the company or partners (LV= ↗)
Relevant life
Some insurers do not cover sole traders taxed under Schedule D (Royal London ↗)
Any director of a limited company can have one, says Royal London (Royal London ↗)
Single life cover, one plan per person (Royal London ↗)
Some insurers do not cover equity partners taxed under Schedule D (Royal London ↗)
Ownership cover
No co-owners to buy out
No co-owners to buy out
A cross option agreement, designed for limited company shareholders (Legal & General ↗)
Aviva's policy pays if a shareholder or partner passes away (Aviva ↗)
Cover on yourself
Premiums not deductible (HMRC ↗)
Key person relief has conditions (HMRC ↗)
Major-shareholder directors may point to a non-trade purpose (HMRC ↗)
A partner's premiums on themselves not deductible (HMRC ↗)
Swipe to compare

Working for yourself, you have no employer death in service: MoneyHelper notes that cover from a past job ends when the employment stops (MoneyHelper ↗).

05 · Getting cover

Getting life insurance for your small business

Map who the business depends on, put a number on each gap, then match each gap to the policy built for it.

For key person cover, Legal & General lists the amount of a loan to be repaid on the key person's death as one basis for the sum insured (Legal & General ↗).

Before you buy, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗).

Key person insurance calculator →Aviva →Legal & General →Zurich →Business life insurance →
01

Map

Find the people the business relies on

Owners, key sales and technical people, and anyone a lender relies on.

02

Size

Put a number on each gap

Earnings, profit and loan methods, with the multiples insurers publish.

03

Match

Match each gap to a policy

Business loss: key person. Family: relevant life. Shares: shareholder protection.

04

Check

Use an authorised firm

Check the insurer, broker or adviser on the FCA Firm Checker before you buy.

05

Review

Review as the business grows

New people, new borrowing and higher profits change the numbers.

06 · UK figures

Small business life insurance: key statistics

We print only figures a named source publishes: one insurer's own research and the Association of British Insurers' claims figures.

Each links to its source.

Key person risk →
of businesses believe they would stop trading within a year of losing a key individual59%

Legal & General's own research, a belief survey, not a failure rate (Legal & General ↗)

Group and individual protection claims paid, 2024£8bn

ABI and GRiD figures; check at the link (ABI ↗)

New individual protection claims paid, 202497.9%

ABI figure; check at the link (ABI ↗)

07 · Sources

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.

Questions

Small business life insurance, answered

Start with who relies on each owner.

If the business would lose profit, that is key person cover, which pays the business.

If a director’s family would need money, that is relevant life, which the company pays for.

If co-owners would need to buy the shares, that is shareholder protection.

We cannot say which suits you; an FCA-authorised adviser can.

We do not publish prices, and we do not give quotes.

Each insurer sets the premium after assessing the person insured and the cover asked for, so the only reliable figure is one an insurer or an authorised broker gives you.

Our cost guide explains what the price depends on. Key person insurance cost guide ↗

It depends on the policy and on how the business is set up.

HMRC allows key person premiums as a deduction only if the sole purpose is meeting a loss of trading income and, for life cover, the policy is term insurance with no other benefits.

Premiums a sole trader or partner pays for cover on themselves are not deductible.

Royal London says relevant life premiums are generally a business expense if paid wholly and exclusively for the business. Key person insurance tax guide ↗

Some policies, yes.

Aviva’s Business Life Insurance Options are available to sole traders as well as limited companies, LLPs and partners.

HMRC says premiums a sole trader pays for cover on their own life are not deductible.

Royal London says some insurers do not offer relevant life cover to sole traders or equity partners taxed under Schedule D. Aviva Business Life Insurance Options ↗

For key person cover, Legal & General’s adviser guide lists several methods: a multiple of the key person’s earnings, often up to 10 times for life cover; up to 2 times the gross profit attributable to them; up to 5 times the attributable net profit; or the amount of a loan to be repaid on their death.

The key person calculator works through them with your own figures. Key person insurance calculator ↗

Beta · information only

Put a number on it, before you speak to anyone.

The key person insurance calculator works through the earnings, profit and loan methods, with the multiples UK insurers publish.

01Earnings, profit and loan methods

02Insurers’ published multiples, with sources

03No email, no quote, no sales call

Information, not advice

We are not an insurer, broker or regulated adviser, and we do not give quotes or recommend a policy. For regulated advice, use an adviser authorised by the FCA.

Open the calculator →

Takes you to the key person insurance calculator.

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.