Loans Hub · Business Protection
Keyman Insurance
Protect your business against the loss of an owner, director or key employee. Keyman (key person) insurance pays a lump sum to cover lost profits, recruitment and loan repayments if the worst happens.
Key person cover estimator
Illustration only. A common method is 5–10× salary plus any loans the person guarantees. Confirm the right figure with an adviser.
What is keyman insurance?
Keyman insurance — properly called key person insurance — is a policy a business takes out on the life (and optionally the critical illness) of an individual who is vital to its success. The business owns the policy, pays the premiums and receives any payout.
If that key person dies or becomes seriously ill, the lump sum helps the business stay stable: covering lost profits while you recover, funding the recruitment and training of a replacement, and reassuring banks, investors and customers. It is one of the most overlooked forms of business protection in the UK — yet for many firms the loss of one person would be far more damaging than the loss of premises or stock.
Who counts as a key person?
A key person is anyone whose death or serious illness would materially damage the business. Typically that includes:
- Founders, owners and managing directors
- Top salespeople or those holding key client relationships
- Technical specialists or product leads
- Anyone who personally guarantees business borrowing
The more concentrated your profit, knowledge or relationships are in one or two people, the more valuable key person cover becomes.
How much cover do you need?
There’s no single rule, but two common methods help you size cover sensibly:
- Multiple of salary: often 5–10× the key person’s salary
- Profit contribution: the share of gross profit attributable to that person, multiplied by the years it would take to recover
You should also add any business loans or director’s loans the person guarantees, so the payout can clear them. Use the cover estimator above as a starting point, then refine it with an adviser.
How keyman insurance is taxed
The tax treatment follows what are known as the “Anderson principles”. Premiums may be treated as a tax-deductible business expense where the policy:
- Is solely to cover loss of profits (not capital or a loan)
- Covers an employee, not a major shareholder
- Is short-term and renewable, matching the person’s value to the business
Where premiums are allowed as an expense, any payout is usually taxable as a trading receipt. Treatment varies with circumstances, so always confirm the position with your accountant or HMRC before relying on it.
Key person, shareholder and relevant life cover
It’s easy to confuse the main types of business protection. They solve different problems and are often combined.
| Cover type | Protects | Who is paid |
|---|---|---|
| Key person insurance | Business profits & continuity | The company |
| Shareholder protection | Ownership & control | Surviving shareholders |
| Relevant life cover | An employee’s family | The individual’s family |
If you also want to safeguard cash flow more broadly, explore funding options such as our unsecured business loans alongside the right protection.
How to get covered in three steps
- Estimate the cover. Use the estimator above or the form below — salary, role and any guaranteed loans.
- We compare insurers. A specialist sources quotes for life and, if you want it, critical-illness cover.
- Put it in place. We help you set up the policy correctly with the business as owner and beneficiary, so the tax and payout work as intended.
It takes under a minute — and enquiring never affects your credit score.
Frequently asked questions
What is the difference between keyman and key person insurance?
They are the same thing. “Key person insurance” is the modern, inclusive term; “keyman insurance” and “key man insurance” are the older names still widely searched for. All describe a business-owned policy on a vital individual.
Who counts as a key person?
Anyone whose death or serious illness would materially hurt the business — typically owners, directors, top salespeople, or staff with specialist skills, key client relationships or technical knowledge that would be hard to replace.
Is keyman insurance tax deductible?
Premiums can be tax-deductible where the policy meets the Anderson principles — broadly, it covers loss of profits for an employee, is short-term and the person is not a major shareholder. If premiums are deductible, the payout is normally taxable. Always confirm with your accountant.
How much does keyman insurance cost?
Premiums depend on the cover amount, the person’s age and health, whether critical illness is included, and the policy term. Cover for a healthy person in their 30s or 40s is often modest relative to the protection it provides.
How much key person cover should a business have?
A common approach is 5–10× salary, or the person’s share of gross profit over the years needed to recover, plus any loans they guarantee. The estimator above gives a quick starting figure.
Does the payout go to the family or the business?
To the business. The company owns the policy and is the beneficiary, so the lump sum is paid to the business to cover lost profits, recruitment and any guaranteed debt. Cover for an individual’s family is a different product (relevant life cover).
Can I include critical illness cover?
Yes. Many businesses add critical-illness cover so the policy also pays out if the key person survives a serious illness but cannot work, which is statistically more likely than death during the policy term.
Do lenders ask for key person insurance?
Sometimes. Banks and investors may require key person cover as a condition of lending or investment, especially where the business depends heavily on one or two individuals.