Key Person Insurance is designed to help protect your business from the financial impact of losing a key employee. Either through death, injury or illness.

A company buys this policy to ensure the life of a person whose work is vital to the success of the business.

What is key man insurance?

Key man insurance helps protect your business from financial loss in the event of a key member of staff dying or becoming seriously ill. Key man is another term used to describe Key person insurance.

The policy is owned by and paid for by your business. If there was a claim, the sum would be paid directly to your company.

The cash lump sum could enable your business to:

  • Replace lost profits
  • Recruit a suitable replacement
  • Help with the repayment of debts
  • Prevent resultant cash flow problems
  • Provide training to existing members of staff

Who is a key person?

A key person is any member of staff whose knowledge, skills and expertise have a direct impact on the success and profits of the business.

This could be, but is not limited to, the following:

  • Directors
  • Business owner
  • Head of departments
  • Any staff with skills or knowledge pivotal to the success of the business.

How does key person insurance work?

Key person insurance works by a company identifying a member/ members of staff who are vital to the success of the business. Here is our step-by-step guide to key person insurance. 

1. Identify staff members without whom, there would be a major financial impact on the business that could not be absorbed by existing provisions

2. Calculate the potential financial impact of losing a key member of staff in the event of death or a critical illness

3. Decide how long the person could be key to the business. Or maybe they would be key all the way through to their retirement?

4. An application is made, where the employee’s health and lifestyle disclosures are given and once terms are offered, the policy commences

5. Should the key person pass away, or suffer a critical illness (if included), the policy will pay out and as long as the business is the owner of the plan, it will receive the payout directly from the insurer.

6. The money can be spent on:

  • Recruiting a suitable replacement
  • Replacing lost profits
  • Repaying any debts
  • Training existing staff to fill the role
  • Ease cashflow problems

For no-obligation qualified advice, our award-winning advisers are on hand to answer any questions. 

Call Freephone 0800 644 4468Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

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What does key person insurance cover?

Key person insurance covers any losses that a business would make in the event that a key person dies. It can also cover the business should the key person become critically ill and no longer be able to work.

Are there different types of key person insurance?

There are different types of key person insurance. Key person insurance can cover life, or critical illness, or both. Doing both protects the business if the employee dies or suffers from a serious illness or major accident resulting in life-changing injuries. If a Key Person suffers a critical illness, such as a stroke or heart attack, it may be some time before they are able to work again. They could potentially never be able to work again.

If a claim is made on a critical illness, this could help to:

Cover the cost of recruitment

Train other members of staff

Go towards the salary of a replacement staff member even on a temporary basis

A business is also able to insure the income of a key person – although this is called Key Person Income Protection.

Find out more about

Critical illness
Two women discussing key person insurance

Any business can take out a key person policy, where the loss of a key person would be a detrimental to the future profits of that company.

You should take out key person cover as soon as you identify the financial need. If you are unsure speak with your Future Proof adviser ( at no-obligation) who will be happy to discuss this with you. 

Imagine what would happen to your business and profits if someone key in your company (and that could be you) stopped working with immediate effect.  How long could your company continue to survive?

“60% of businesses would cease trading in under a year after the death/illness of a key person.” [stated in Legal & General state of the nation’s SME’s 2021]

How much does key person insurance cost?

There are many factors that contribute to the cost of key person insurance. Mainly your: 

  • Age
  • Weight
  • Lifestyle
  • Occupation
  • Policy length
  • Medical history
  • Amount of cover
  • Family medical history

Your Future Proof adviser can provide you with competitive key person insurance premiums. They can also advise you on how much, for how long and any additional benefits insurers offer within their policies.

Such benefits could include the services of a recruitment company and medical therapies for the ill employee, to assist in their return to work. 

A guide to monthly premiums payable

The table below illustrates the cost of Key person cover at £250K over a term of 10 years. The premium figures shown are monthly premiums.

Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Monthly premiums shown are an average of the 5 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.

Quotes provided July 2023.

Age in yearsNon-SmokerSmoker
30£7.18 £11.34
40£12.32 £24.71
50£28.54 £69.80
60£72.53 £195.48
70£196.96 £507.93

Who in my company needs key person cover?

In order to determine whether your company needs key person cover, have a think about how your company runs. Consider people in these roles:

  • Founders 
  • Co-founder 
  • Managing directors 
  • Company directors 
  • Sales directors
  • IT specialists
  • Head of product development

Without being specific about titles is there anyone that has specific skills? Knowledge? Experience?

Essentially, anyone who is important to the future of your business and its financial success should be covered by key person insurance.

Here are some popular questions our clients ask us:

  • The amount of cover suitable for your business will be based on many factors.

    Such as:

    • The role the key person plays within the business 
    • What the money would be needed for upon claim
    •  What assets your business might have which could be put towards any potential costs in the event of a key person’s death or ill health.
  • There are fundamental differences between key person insurance and business insurance. 

    • Key person protects the business from the loss of profit. (Or cost of replacement) caused by the death or critical illness of an indispensable employee.
    • Business insurance refers to several different types of cover designed to protect a business. For example a business insurance policy could include:
    1. office insurance
    2. public liability insurance
    3. employers’ liability insurance 
    4. cyber and data risk protection
    5. professional indemnity insurance


  • Key person insurance does not automatically include cover for critical illness. But it can be requested and added to the policy at outset.


  • It is important that you speak with a qualified and experienced protection specialist. Future Proof offers an award-winning, tailored no-obligation service, with all of our recommendations based on your own circumstances.

    There are many great providers of key person insurance. They all differ, in how much they allow you to insure and their quality of  additional benefits. Future Proof can search the market on your behalf, saving you time and money.

How do I get a quote for a key person policy?

We recommend that you speak with one of our qualified advisers. Any quote that your adviser provides you with will take into account your circumstances and medical history, as well as your budget.

There are many factors to consider when finding the most suitable key person insurance, such as knowing you have chosen the right amount to insure, for the most efficient length of time. All insurers have varying rates and terms and conditions. We can cut through the complexities and offer clear and straightforward advice. 

An online quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.

Call Freephone 0800 644 4468Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.

Why not give us a call?

Our advice is no-obligation and we have experience in placing in excess of £588,192,642 in 2022 of business protection cover for our clients.

Freephone 0800 644 4468

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Key person cover questions related to Tax and claims

  • The beneficiary of key person insurance is the company, as the company owns the policy and requires the money in the event of a claim.

  • There is no straightforward answer to whether key person cover is tax deductible. You must refer to your accountant or tax specialist in the first instance.

  • A beneficiary claims on a key person policy in the same way that a personal policy is claimed on. You can contact Future Proof who set up your key person policy and we will start the claim, handling the whole process for you. Or, you can contact the insurer and begin your claim yourself.

    The insurer will request copies of a death certificate, or consultant letters discussing the critical illness before any claim can be paid.


  • Key person cover does not usually need to be placed in Trust as the policy tends to be owned by the business not by the person themselves.

What’s the difference between key person insurance and life insurance?

The difference between key person insurance and personal life insurance is that with key person insurance the business owns the policy and pays for the premiums. So the policy is set up under what is called ‘life of another’, with the payout going to the business when the key person dies.

The money can then be used to replace any lost profit or recruitment of a new key person. The premiums may be tax deductible although to confirm this you must refer to your accountant or tax specialist in the first instance. 

With a personal life insurance policy, it is the individual who owns the policy and pays for the premiums. The proceeds will pass on to their loved ones when they die.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.