What is key person insurance? Keyman cover, explained
Key person insurance, also called keyman or key man insurance, gives a business the money to stay steady without someone it depends on: to cover lost profit, recruit a replacement or repay a loan (Legal & General ↗).
The business owns and pays for the policy, and receives the payout if the person insured passes away, or is diagnosed with a covered critical illness where that cover was chosen (Legal & General ↗).
This guide covers who needs it, how much cover, cost, tax, buying and claims.
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, to check at the link: (Legal & General ↗)
Key facts: key person insurance
Eight lines that answer most first questions.
Each one links to the document it comes from, and the sections below go into the detail.
- What it is: cover an employer takes out in its own favour, to protect its profits if a key person passes away or becomes ill (HMRC ↗)
- Who pays: the business owns and pays for the policy (Legal & General ↗)
- Who is paid: the business, with no trust needed (Royal London ↗)
- When it pays: if the person insured passes away or is diagnosed with a terminal illness, or a specified critical illness if chosen (Legal & General ↗)
- Cover types: life cover, with critical illness if chosen (Legal & General ↗), or a monthly income protection benefit (Legal & General ↗)
- How much: sized to the person's earnings, the profit they bring, or a loan (Legal & General ↗)
- Tax: premiums can be deductible only if HMRC's conditions are met (HMRC ↗)
- Also known as: key man insurance, which means the same thing (Legal & General ↗)
Key person insurance meaning and definition
HMRC's manual describes key person insurance as a policy an employer takes out in its own favour, insuring against loss of profits from the death, critical illness, sickness, accident or injury of an employee, director or other key person (HMRC ↗).
The company is both the applicant and the plan owner, and the key person is the life covered (Royal London ↗).
That is the key man insurance meaning in one line: the business insures a person it depends on, and the business is paid.
Royal London adds that insurable interest must be demonstrated (Royal London ↗): the business needs a real financial stake in the person, which is why the cover is sized to what they are worth to it.
“An employer may take out in their own favour a policy insuring against loss of profits resulting from the death, critical illness, sickness, accident or injury of an employee, director or other ‘key person’.”
HMRC Business Income Manual, BIM45525 (HMRC ↗)“Put simply, ‘key man insurance’ is where a business insures itself against the financial loss it would suffer in this eventuality.”
Legal & General (Legal & General ↗)“Instead, the company owns the plan, pays the premiums and receives the proceeds.”
Royal London technical guidance (Royal London ↗)
Keyman, key man, key person: the same cover
If you searched for keyman insurance, key man cover, key person protection or key employee insurance, you are in the right place.
Legal & General says key man insurance means the same thing as key person insurance (Legal & General ↗).
“Key person” is the wording in HMRC's manual (HMRC ↗) and the insurers' guides, such as Royal London (Royal London ↗), so this site uses it throughout.
Pick the name you searched to see what it means.
The name you searched
Same product as key person insurance
Keyman insurance · Key man insurance · Key personnel insurance
The older names for the same policy. Legal & General says “key man insurance” means the same thing as key person insurance, and that it covers a key individual, men and women (Legal & General ↗). HMRC's manual and the insurers' guides use “key person” (HMRC ↗).
Same product as key person insurance
Key man cover · Keyman cover · Key person cover · Key man insurance cover · Key man coverage
“Cover” and “coverage” are other words for the insurance itself. LV= calls it key person cover: life insurance taken out by a business on the life of a crucial person in the business (LV= ↗).
Same product as key person insurance
Keyman insurance policy · Key man policy · Keyman policy insurance · Key person insurance policy
The policy is the contract itself. The company is both the applicant and the plan owner, and the key person is the life covered (Royal London ↗). The company pays the premiums and receives the proceeds, so no trust is needed (Royal London ↗).
Same product as key person insurance
Key person protection · Keyman protection · Key man protection
Key Person Protection is Legal & General's name for its key person policy: life insurance, with critical illness cover if selected, owned and paid for by the employer so any payout goes to the employer (Legal & General ↗).
Same product as key person insurance
Key man business insurance · Key person business insurance
It is business insurance because the business is the customer: the policy is owned and paid for by the employer, and any payout is payable to the employer (Legal & General ↗). Shareholder protection and relevant life, compared further down this page, are different policies.
Same product as key person insurance
Key employee insurance · Key employee life insurance · Key worker insurance
Where the business insures a worker it depends on, this is the same cover. HMRC's manual describes it as a policy on an employee, director or other key person (HMRC ↗). Job title does not decide it: the business must be able to show it would lose profits in the person's absence (Legal & General ↗).
Same product as key person insurance
Key man life insurance · Key person life insurance
The life-cover form of the policy. Legal & General's pays out if the person insured passes away or is diagnosed with a terminal illness where life expectancy is less than 12 months, and on a specified critical illness only if that cover was chosen at the outset for an extra cost (Legal & General ↗).
A different use of the name
Key person insurance at Hiscox
Not every firm uses the name the same way. Hiscox's glossary describes key person insurance as a variant of personal accident insurance, paying a lump sum if someone vital to the business cannot work through illness or injury (Hiscox ↗). Read what a policy pays for, not only what it is called.
Who needs it, and who counts as a key person?
Any business whose profits rest on one person's skills, contacts or leadership.
Job title does not decide who counts: the business must be able to show it would lose profits in the person's absence (Legal & General ↗).
It needs the person's agreement and a financial relationship with them (Legal & General ↗), and Aviva's policy is open to limited companies, LLPs, partners and sole traders (Aviva ↗).
Tick what is true of the person you have in mind.
Nothing you tick is stored or sent.
Tick what applies
Each line is a loss Legal & General says a payout could help with.
Typical key people, in Legal & General's words
- Owner or founder
- CEO
- Operations manager
- IT manager
- Web developer
- Sales lead
- Employees with lots of contacts
- Exceptional talents
HMRC's manual names an employee, director or other key person (HMRC ↗). Check the list at its link: (Legal & General ↗)
How does key person insurance work?
The business applies, owns the plan and pays the premiums (Royal London ↗).
Legal & General's policy pays if the key person passes away or is diagnosed with a terminal illness where life expectancy is less than 12 months, and on a specified critical illness if that cover was chosen at the outset for an extra cost (Legal & General ↗).
The payout goes to the business (Legal & General ↗).
The key person agrees to be covered (Legal & General ↗), but they are not the one who is paid.
That is the difference from personal life insurance, covered further down.
Apply
The business takes out the policy
The company is the applicant and the plan owner; the key person is the life covered.
Pay
The business pays the premiums
No trust is needed, because the company owns the plan.
Claim
The business makes a claim
If the key person passes away or is diagnosed with a covered illness. Critical illness pays only if it was chosen, for the conditions the policy defines.
Payout
The money goes to the business
To cover lost profit, recruit a replacement or repay a loan.
What does key person insurance pay for?
Whatever the business needs.
Royal London says that when the company gets the proceeds it can then decide how to use them, for example to settle corporate debt, or to meet the company's financial needs while it reorganises or recruits a replacement (Royal London ↗).
Legal & General lists the losses the money could help with (Legal & General ↗), shown here.
It replaces money, not the person: the knowledge and relationships still have to be rebuilt.
What Legal & General says a payout could help with
- Loss of profits
- Recruiting or training a replacement
- Lost personal or business contacts
- Lost goodwill that could affect raising capital
- Customers and suppliers losing confidence
- Outstanding loans
Royal London's examples
- Settling corporate debt
- Meeting the company's needs while it reorganises or recruits
Check each list at its link: (Legal & General ↗) (Royal London ↗)
Types of key person insurance cover
Legal & General's adviser guide lists three forms: key person life insurance, key person cover with critical illness, and Key Person Income Protection (Legal & General ↗).
Life cover, often searched as key man life insurance, pays a lump sum if the person insured passes away.
Critical illness pays on a covered diagnosis: under the ABI's standards, a policy called critical illness must cover cancer, heart attack and stroke to minimum definitions (ABI ↗), and those three account for 80% of critical illness claims (ABI ↗). Income protection pays the business a monthly benefit while the person cannot work (Legal & General ↗).
Sizing figures and ages are single insurers' published limits, not recommendations; underwriting decides. Check each at its link.
How key person cover is sized
Insurers publish three ways to size the cover, and the calculator below applies all three.
Earnings: a multiple of the key person's pay, often up to 10 times for life cover, with a lower figure for critical illness (Legal & General ↗).
Scottish Widows counts salary, regular bonuses, dividends and other regular taxable income, averaged over two to three years where income varies (Scottish Widows ↗).
Profit: up to 2 times the gross profit (Legal & General ↗), or 5 times the net profit (Legal & General ↗), attributable to the key person, usually averaged over the last 2 years (Legal & General ↗).
Loan: the amount of a business loan to be repaid if the key person passes away (Legal & General ↗).
Each insurer's published ceiling, not a recommendation; underwriting decides. Sources: Royal London (Royal London ↗), Scottish Widows (Scottish Widows ↗), Zurich (Zurich ↗) (a 2021 guide), Legal & General (Legal & General ↗).
Key person insurance for business: a cover calculator
Insurers size key person cover from what the person is worth to the business.
The simplest rule is a multiple of their pay: up to 10 times earnings for life cover at Legal & General (Legal & General ↗), and up to 7 times total remuneration at Zurich (Zurich ↗).
Others use the profit the person brings, or a loan the business would have to repay.
Type your own figures.
The result is each insurer's published ceiling, not a quote: the underwriter sets the final amount, and the price depends on the person.
Salary, regular bonuses and dividends; insurers word it differently
Their share of the business's net profit, averaged over recent years
Their share of gross profit
Business borrowing that would need repaying
£420,000 to £600,000
Across 4 published rules that apply to the figures you gave. Each is a ceiling, not a recommendation: the insurer's underwriter sets the real limit.
Add a net or gross profit figure above to see this method.
Add a loan figure above to see this method.
No premium is shown: the price depends on the person and needs an insurer's underwriting. Nothing you type is stored or sent.
Key man insurance vs life insurance
Key man life insurance is life insurance, but the business is the customer and the business is paid.
Personal life insurance works the other way round: MoneyHelper describes it as financial support for your dependants if you pass away, with you deciding who receives the payment (MoneyHelper ↗).
The other big difference is what each is sized to, shown in the last row.
How much does key person insurance cost?
The price is set for one person and one policy, and no insurer we checked publishes a key person rate card.
What decides it is published: MoneyHelper's list for life insurance is shown here (MoneyHelper ↗).
Aviva adds: “The more coverage you need, the higher your premium will be.” (Aviva ↗)
For key man insurance rates, the closest published figures are one broker's example, which is not a quote (Drewberry (broker) ↗).
What MoneyHelper says sets a life insurance price
- Age
- Health
- Lifestyle
- Smoking
- Family medical history
- Length of the policy
- Occupation
Check the list at the link: (MoneyHelper ↗)
Drewberry (an FCA-authorised broker, not an insurer): healthy non-smoker, company director, office-based duties, quotes accurate as of August 2025. No insurer is named. Check it at the link: (Drewberry (broker) ↗)
Is key person insurance tax deductible?
It can be.
For keyman insurance, HMRC's manual sets two conditions, shown side by side here: the sole purpose must be meeting a loss of trading income (HMRC ↗), and life cover must be term insurance with no other benefits (HMRC ↗).
Whether a policy meets them is a question of fact (HMRC ↗).
One case needs care: where a director's passing would significantly affect the value of the company's shares, protecting that value may be a non-trade purpose (HMRC ↗).
Tax depends on your facts, so check it with your accountant.
How to buy key person insurance, and what the insurer asks
Legal & General says its own team of financial advisers can advise on Key Person Protection (Legal & General ↗).
Insurers whose key person documents we cite include Legal & General (Legal & General ↗), Royal London (Royal London ↗), Scottish Widows (Scottish Widows ↗), Zurich (Zurich ↗), LV= (LV= ↗) and Vitality (Vitality ↗).
We do not rank them.
Whoever sells it must first specify your demands and needs from what you tell them (FCA ↗).
Before you buy, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗).
About the person, the insurer looks at medical history and current health, and might ask for a medical exam (Aviva ↗).
Age limits apply, as the table of cover types shows (Legal & General ↗).
About the business, it asks why their absence would cost profit (Legal & General ↗), and for their remuneration or the profit attributable to them (Scottish Widows ↗).
Aviva asks for a full financial questionnaire only above £2.5 million of life cover or £1 million of critical illness cover (Aviva ↗), and gives up to £1 million of free life cover while it looks into a case it cannot decide straight away (Aviva ↗).
Decide
Name the person, and what they bring
Show what their absence would cost the business: profit, recruiting a replacement, a loan. Get their agreement to be covered.
Size
Put a figure on the cover
Use their pay, the profit they bring, or the loan. The calculator on this page applies the insurers’ published rules.
Ask
Get quotes through an authorised firm
A broker or adviser records your demands and needs and asks insurers. Check the firm on the FCA register first.
Answer
Complete the application in full
Health, lifestyle and the business figures. Non-disclosure is a common reason a claim is later declined.
Start
The business owns and pays
The company is the plan owner and pays the premiums. Review the cover when the person’s role or pay changes.
Key person insurance claims: how they get paid
The business, as the plan owner, receives the proceeds (Royal London ↗).
Across the UK market, the great majority of protection claims are paid: the ABI's 2024 figures are shown here (ABI ↗).
They cover all policies, not key person cover alone.
Where a claim is declined, the ABI names two common reasons, listed here (ABI ↗), so answer the application fully.
Check at the link: (ABI ↗)
ABI and GRiD figures; check at the link: (ABI ↗)
Why a claim can be declined
- Existing medical conditions not disclosed when the policy was taken out (ABI ↗)
- The claim does not meet the policy definitions (ABI ↗)
- An answer on the application was not truthful or accurate, or something was not disclosed (MoneyHelper ↗)
The ABI names the first two as common reasons; MoneyHelper warns of the third. Check each at its link.
Key person vs shareholder protection vs relevant life
Three covers on the same director, paying three different people.
Key person insurance pays the company for a loss of profit (HMRC ↗).
Shareholder protection lets the other owners buy a shareholder's shares: a cross option agreement gives the survivors the option to buy them from the personal representatives (Royal London ↗).
Relevant life is a single life plan the employer takes out and pays for on behalf of an employee or director, paying their family through a trust (Royal London ↗).
They are not interchangeable: Legal & General says its Relevant Life Plan should not be used for business protection such as key person or shareholder protection (Legal & General ↗).
If you searched for employer or employee life insurance, death in service is different again: an employee benefit paying a tax-free cash sum to the family if an employee passes away while on the company payroll (Legal & General ↗).
Royal London describes three shareholder protection structures; the row shows one. Check each at its link.
Key person insurance pros and cons
What the cover does well, and where its limits are.
It replaces money, not the person: the knowledge and relationships still have to be rebuilt.
Protect your business: where to go next
Now you know what key person insurance is, these guides go further.
Each card says what it covers.
- The hub
Business protection insurance
Every cover that keeps a business steady without an owner or key person, and who each one pays.
Read the guide → - Before you buy
Do I need key person insurance?
Work through whether the business depends on one person enough to insure them.
Read the guide → - Before insurance
Key person risk
Spot how much of the business rests on one person, and reduce it.
Read the guide → - Size the cover
Key person insurance calculator
Work through the earnings, profit and loan methods insurers publish.
Read the guide → - The premium
Key person insurance cost
Published premium examples with their assumptions, and what decides the price.
Read the guide → - HMRC
Key person insurance tax
When premiums are deductible, and how a payout is taxed.
Read the guide → - Business or family
Key man insurance vs life insurance
Who owns, pays for and receives each policy.
Read the guide → - Business or family
Key person vs relevant life
Two policies the company pays for, paying different people.
Read the guide → - Pays the business, to pay the person
Executive income protection
Funds a director’s or employee’s sick pay while they cannot work.
Read the guide →
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 ↗What key person cover is, the conditions for a deduction, and the tax on a payout
- HMRC Business Income Manual, BIM45530 ↗The sole-purpose test is a question of fact; shares as a non-trade purpose
- HMRC Business Income Manual, BIM45560 ↗A sole trader’s or partner’s cover on themselves
- Legal & General key person insurance ↗Key man means the same; who can be a key person; claim events; what a payout helps with
- Legal & General adviser guide ↗Sizing cover: earnings, profit and loan methods
- Legal & General Key Person Protection (adviser) ↗Oldest entry ages for life and critical illness cover
- Legal & General Key Person Income Protection ↗A monthly benefit to the business while the person cannot work
- Royal London technical guidance ↗Ownership, no trust, insurable interest, and the salary and profit multiples
- Royal London: shareholder protection ↗Own-life plans in trust, and cross option agreements
- Royal London: relevant life plan FAQs ↗Who takes out, owns and is paid by a relevant life plan
- Scottish Widows underwriting FAQs ↗How the maximum is set, and what remuneration includes
- Scottish Widows key person calculator ↗Its published earnings multiples
- Zurich intermediary guide ↗Key person salary multiples (November 2021 guide)
- LV= key person cover ↗Life insurance on a crucial person, paid to the business
- Aviva business protection ↗Financial evidence thresholds, and cover while it underwrites
- Aviva: how life insurance premiums are calculated ↗Medical exams, age, lifestyle and cover amount
- Drewberry (broker): keyman insurance cost ↗A broker’s key person premium example, August 2025. Not an insurer
- Hiscox business insurance glossary ↗A different use of the name “key person insurance”
- ABI Guide to Minimum Standards for Critical Illness Cover ↗What a policy must cover to be called critical illness
- Association of British Insurers ↗2024 protection claims figures, and why claims are declined
- FCA Handbook, ICOBS 5.2 ↗The demands and needs test on every insurance sale
- FCA Firm Checker ↗Check a broker or adviser is authorised before you buy
- MoneyHelper: what is life insurance? ↗Personal life insurance, what drives the price, and disclosure
Key person 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.