Key Person Insurance

Protect your business against the financial impact of losing a key director or employee.

Key Person Insurance — sometimes called Key Man Insurance — is a business protection policy that pays a lump sum directly to your company if a key director or employee dies or is diagnosed with a critical illness. For many businesses, the loss of one individual could threaten the company's survival. Key Person Insurance gives you the financial breathing space to recover, recruit, and continue trading.

Book a Free Consultation Call 01737 333249

What is Key Person Insurance?

Key Person Insurance is a life insurance or critical illness policy taken out by a business on the life of a key individual — typically a director, founder, or employee whose skills, relationships, or knowledge are critical to the company's performance. The business owns the policy, pays the premiums, and receives the payout. The sum insured is calculated to reflect the financial impact the business would suffer — covering lost profits, recruitment and training costs, loan repayments, or the cost of a temporary replacement. Cover can be on a life-only basis, a critical illness basis, or a combination of both. Key Person Insurance is also sometimes called Key Man Insurance or Key Employee Insurance.

Who is it suitable for?

Limited companies that depend heavily on one or more key directors or employees

Businesses where a key person generates a significant proportion of revenue or profit

Companies with outstanding bank loans, overdrafts, or investor funding

Businesses where a key person's specialist skills or client relationships are difficult to replace

Partnerships and LLPs where the loss of a partner would threaten the business

Any business that would struggle to survive or recover without a specific individual

Businesses seeking to reassure lenders, investors, or shareholders that key risks are covered

Key Benefits

Pays a lump sum directly to the business on death or critical illness of a key person

Covers lost profits during the period needed to recruit and train a replacement

Funds recruitment, headhunting, and onboarding costs for a suitable replacement

Can be used to repay business loans, overdrafts, or investor funding

Provides financial stability during a period of uncertainty for staff, clients, and suppliers

Reassures lenders and investors that the business is protected against key person risk

Cover can include critical illness — not just death — protecting against long-term absence

Whole of market — we compare all leading insurers to find the most suitable policy

No broker fees

Tax Considerations

The tax treatment of Key Person Insurance depends on the purpose of the policy and how it is structured. Where the policy is taken out to protect against loss of profits — an income purpose — premiums may be deductible as a business expense and the payout may be treated as a trading receipt subject to corporation tax. Where the policy is taken out to protect against a capital loss — for example, to repay a business loan — premiums are generally not tax deductible and the payout is generally not taxable. Getting the structure right matters. We will explain the options clearly and recommend you seek independent tax advice to ensure the policy is structured correctly for your circumstances. Tax treatment depends on individual circumstances and may be subject to change.

Tax treatment depends on individual circumstances and may be subject to change. We recommend seeking independent tax advice.

Real-World Examples

Loss of a key salesperson

A technology business has one salesperson who generates 45% of annual revenue. He dies unexpectedly at 42. The Key Person Insurance payout — equivalent to two years' gross profit contribution — covers the business while it recruits, onboards, and trains a replacement. Without the policy, the business would have faced serious cash flow difficulties within months.

Critical illness of a founding director

A founding director of a professional services firm suffers a stroke and is unable to work for 18 months. The Key Person critical illness payout covers the cost of a senior interim manager and compensates for the lost revenue during her recovery. The business continues to trade and retains its key clients.

Protecting a business loan

A manufacturing business has a £600,000 bank loan that was secured on the strength of the managing director's personal guarantee and track record. Key Person Insurance ensures the loan can be repaid if the director dies, preventing the bank from calling in the debt and threatening the business.

Reassuring investors

A fast-growing e-commerce business has received investment from a venture capital firm. The investors require Key Person Insurance on the two founders as a condition of funding. The policy provides the investors with confidence that their investment is protected against the loss of either founder.

Frequently Asked Questions

Request Your Relevant Life Quote

Find out if your business protection is adequate, correctly structured, and as tax-efficient as it could be.

Why Choose JK Insurance Brokers?

Whole-of-market access — all leading insurers
FCA authorised & regulated (FRN 1047042)
No broker fees — ever
Business protection specialists
Personal, one-to-one service with Tom Dobbe
UK-wide advice by phone or video call
Ongoing reviews as your business grows

Speak Directly to Tom

I help company directors and business owners protect their families, shareholders and businesses.

01737 333249 [email protected]