What Is Key Person Insurance?
Key person insurance is a policy taken out by a business on the life of a critical individual, someone whose skills, knowledge, relationships or leadership are essential to the company's success.
If that person dies or is diagnosed with a critical illness, the policy pays a lump sum to the business, which can be used to:
- Replace lost revenue
- Fund recruitment and training costs
- Repay business debts
- Maintain cash flow during the transition
Who Is a Key Person?
A key person could be:
- A founder or managing director
- A top salesperson who generates significant revenue
- A technical specialist with unique knowledge
- Someone with critical client relationships
How Much Cover Do You Need?
The amount of key person cover depends on:
- The individual's contribution to revenue or profit
- The cost of finding and training a replacement
- Any business debts that are personally guaranteed
- The time it would take the business to recover
Tax Treatment
Key person insurance premiums may be treated as an allowable business expense, subject to HMRC rules. The payout may be subject to Corporation Tax. The tax treatment depends on the purpose of the policy, so professional advice is important.
Next Steps
Visit our business protection page or book a consultation to discuss key person cover for your business.
Want to discuss your protection needs?
Book a free consultation with a specialist adviser.