Key man insurance


Lucy James

To find out exactly what your eligible for and at what rates please or give us a call on 0800 304 7880.

Key man / key person insurance is used to protect businesses against loss of income due to the illness or death of an indispensable member of staff / director. It is effectively a critical illness / life cover policy that pays out in the event of diagnosis of a critical illness or the person passing away.

Typically only available for businesses in the United Kingdom, Channel Islands and Isle of Man, key person protection is viewed by many business owners as an essential feature of their protection portfolios.

Have a read below about what options are available to you and your business:

  • Key man life insurance
  • Key man critical illness insurance
  • Key man terminal illness insurance

Make a full enquiry here if you want to obtain a quote ASAP. If you require immediate assistance or have a general questions please click the LIVE CHAT balloon or give us a call.


Key man insurance explained

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Key man insurance definition

Keyman insurance in the UK (also known as key worker insurance / key person insurance / key employee insurance) is protection for businesses against the illness or death of their key employees. Directors of businesses can also get cover, but typically shareholder cover is known as shareholder protection.

The purpose is to ensure that should a business be reliant on one, two, or several members of staff, there is sufficient cover in place should one of them fall ill or die, to fund various elements such as sick pay; new staff recruitment and wages; and also to make up for the loss of income and any potential wider impact on the business.


Key man insurance example

A working example of Key person cover: A commercial glazing company has 3 shareholders and 50 employees. 5 of these employees are non-shareholding directors of departments and oversee operations independently of the shareholders who have a very passive role. The director of the sales department falls seriously ill with cancer and is unable to return to work, leaving the shareholders to decide how to ensure the department continues to function and make money. This means that one of the shareholders, another member of staff, or a new recruit would need to step in and run things. Understanding the risk of leaving the department in the hands of someone inexperienced or untested, the shareholders employ a recruitment agency and spend 3 months interviewing new applicants.

As a result there was a decrease in sales equating to £15,000; £2,500 recruitment fees; £45,000 salary for the new employee, approximately £5,000 training and induction costs, and also £30,000 to honour the critically ill directors’ sick pay for 12 months.

Thankfully, the shareholders had reviewed their protection needs the previous year and had taken £100,000 life & critical illness key person cover for each of the department directors. A claim was made at the time the sales director was diagnosed with cancer, and the policy paid out directly to the business account. Without this policy, the business may not have been able to pay the director any sick pay, pay recruitment fees, or even cover the costs of the reduction in sales. The business may then have continued to decline, and sales dropped further without someone in charge of the department.

Which insurer is best for key person cover?

When it comes to key person cover, there are various companies that provide different solutions and different benefits – some are mainstream providers of general cover, others offer more specialist products tailored to your specific requirements.

To determine which provider is best for you and your business, it really depends on a number of factors, including who is the most competitive provider at the time you apply (as prices can change regularly).

Make a full enquiry here if you want to obtain a quote ASAP. If you require immediate assistance or have a general questions please click the LIVE CHAT balloon or give us a call


How to apply for Key person life insurance

In order to get key man insurance for one of your employees, your advisor will first need to assess the level of cover you’d require (unless you already have an idea of this), search the market for the best cover at the most competitive price, and then submits an application to the insurer. Typically, key man insurance brokers may/may not charge for this service depending on the nature and type of policies you take out. If you undertake a full review of your business needs, it may be that Keyman cover isn’t necessarily the most appropriate cover and there may be alternatives better suited – CLICK to view other business protection options here.

In most cases the insured key person will need to complete a medical questionnaire which is carried out with them directly, and then the application is fully underwritten by the insurer. They take into account various things to establish terms, including the key person’s age, height, weight, smoker status, pre-existing medical conditions, occupation etc etc.

The results of the medical underwrite will be either a full accept on standard terms; an accept with exclusions or an increased premium; a referral to the GP or nurse for a medical report; a postponement for cover until something changes medically; or an outright decline for cover.

There may be slightly more scrutiny over a keyman insurance application, as further questions are usually asked regarding the business and it’s insurable interest in the applicant. The insurer is likely to ask about the business hierarchy, who the directors are, what the current state of trading is, its accounting history, registration numbers etc. Naturally, only a third party with an appropriate insurable interest in an individual can place an insurance policy on their health and life – people would otherwise benefit from the death of another which can’t be a great world to live in!

Once the policy terms have been agreed, the cover can go in force immediately and then monthly payments (if not being paid annually) usually start 14 days after the start date.

Make a full enquiry here if you want to obtain a quote ASAP. If you require immediate assistance or have a general questions please click the LIVE CHAT balloon or give us a call


Key man insurance costs

Typically those looking for key person cover are interested first in the level and types of cover available, and then of course they ask ‘how much does key man insurance cost’?!

Key man life insurance rates can vary depending on the age and the health status of the individual insured, and the nature and size of the cover you want to take out. Typically speaking the younger and healthier the applicant, the more likely it is to be offered on standard terms, and anyone smoking or who has pre-existing medical issues etc. will be more likely to pay a higher-rated premium. Enquire below to get a quote today…

Make a full enquiry here if you want to obtain a quote ASAP. If you require immediate assistance or have a general questions please click the LIVE CHAT balloon or give us a call


Key man insurance tax

A lot of directors and business owners that visit our site and considering the various types of business protection, are particularly interested in the tax treatment of key person insurance policies. It is certainly an important factor because claiming it as a taxable expense could really benefit the monthly premiums.

Not being qualified or registered to give tax advice, this is an area on which we prefer to avoid giving too much analysis. There are certain guidelines and rules around taxable benefits and what can and can’t be claimed back as a business expense, so please visit the HMRC website for more info, or you can contact your accountant of course!

To summarise, HMRC suggest:

The premiums on such a policy will be allowable if all the following conditions are met:

• The sole purpose of taking out the insurance is the trade purpose of meeting a loss of trading income that may result from loss of the services of the key person, and not a capital loss.

• In the case of life insurance policies, they are term insurance, providing cover only against the risk that one or more of the lives insured dies within the term of the policy, with no other benefits. The insurance term should not extend beyond the period of the employee's usefulness to the company.

Generally, pure protection policies like key man cover can potentially be allowable, whereas anything investment-linked will count as capital expenditure and not be deductible.


Key man insurance quotes

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