As a business, you may have several forms of insurance to cover your legal requirements and help you manage risk, but these don’t cover some of your most important assets which are the key people in your business.
Key person insurance gives businesses a lump sum payout to help them as a result of a key person temporarily or permanent being absent from work as a result of illness or death.
Losing a key person at short notice can have a huge impact on some businesses, so key person insurance can be really helpful in safeguarding the business and its profits as well supporting recruitment to replace staff temporarily or permanently.
We have reviewed what some of the leading business insurance providers can offer.
The table below gives a quick comparison of the top UK providers for key person insurance.
|Company||Minimum cover||Maximum cover|
|AIG||Not stated||Not stated|
|AXA||Not stated||Not stated|
|Ageas||Not stated||Not stated|
|LV=||Not stated||Not stated|
|NFU Mutual||Not stated||Not stated|
|Legal & General||Not stated||Not stated|
|Royal London||Not stated||Not stated|
|Tokio Marine||Not stated||$6 million|
|Vitality||Not stated||Not stated|
|Scottish Widows||Not stated||Not stated|
|Aegon||Not stated||Not stated|
|Zurich||Not stated||Not stated|
* The facts and figures included here come from each company’s website and were accurate at the time of writing but may have since changed. Also, please keep in mind these may not be apples to apples comparisons as each provider offers different solutions. This guide should be used as a starting off point for more research on your part.
Below we profile each of the companies’ services and features in a bit more detail.
Note companies are ranked in no particular order and this no way indicates one solution is better than another. Moreover, SmallBusinessPrices.co.uk is not regulated by the FCA and so we can’t recommend any particular product/company as being better than any other.
Some of the features and benefits of AIG’s key person insurance.
- Insures against the financial loss of a key person
- Covers death, terminal illness or critical illness
- Provided through either life insurance or life and critical illness policy
- Pays out a lump sum to the business
- Covers the loss of profits
- Can be owned by the business or an individual business owner
- Can be used to recruit a temporary or permanent replacement
- The business owner can be the person insured
- Flexibility to change the cover
- Only available through intermediaries and financial advisors
AIG is an insurance business that offers a range of life-based insurance products which includes key person insurance. This policy provides valuable protection for businesses to help them if a key person is diagnosed as terminally ill, critically ill or dies.
AIG’s key person cover allows businesses to have the funds to take the necessary steps to replace the person with someone else temporarily or permanently. The key person can be an owner, director or significant contributor to the business’ profits. Their cover can be tailored for your needs and is flexible so that you can alter the cover if needed. Policies are only available through financial advisors or intermediaries.
Some of the features and benefits of AXA’s key man insurance.
- Key man insurance to cover those employees essential to the business
- Helps business to stay afloat after losing a key person
- Covers death, permanent total disability, accidental hospitalisation and critical illness
- The business is the beneficiary of the policy
- Most suited to small to medium businesses
- Offsets the costs of hiring a temporary or permanent replacement
- Offers reassurance to investors
- Protects your credit status
- Helps to protect against arrears and financial difficulties
- Offered through intermediaries
AXA offers a range of life insurance and risk protection products to businesses that are available through intermediaries. Keyman insurance offers businesses the security and protection of a policy that pays out a lump sum to the business if a key person is seriously injured, permanently disabled, critically ill or dies.
AXA’s keyman insurance is most suited to small to medium businesses who would suffer the most at the loss of a key person. It helps businesses when they need it to recruit a temporary or permanent replacement, but it also protects the business’ credit status, protects against arrears and financial difficulties result from the loss.
Some of the features and benefits of Ageas’s key person insurance.
- Combined insurance that covers personal accident and key person insurance
- Peace of mind for both employer and employee
- Employee benefit with weekly payments whilst injured
- Acts as death in service cover or a top up for this
- Hiring costs for a replacement
- Covers overtime costs to cover the key person’s work
- Includes business interruption protection
- Protects the employer’s liability
- Supplements permanent health insurance cover
- Only available through a broker
Ageas has created a combined employee cover that allows businesses to offer employees a death in service benefit as well giving them the protection they need for business interruption and key person insurance under one insurance called personal accident.
Ageas’ personal accident insurance includes hiring a replacement for an injured member of staff, training the replacement and overtime funding. It also covers buying out a business partner, employers’ liability and supplements permanent health insurance cover. This offers employers complete peace of mind through a single policy. Personal accident insurance is only available through a broker who can advise you about the level of cover you need.
Some of the features and benefits of LV=’s key person cover.
- Covers both a key person dying or being seriously ill if critical life cover is selected
- The employer is the beneficiary
- Covers any person who has a direct impact on the business’ profits
- Covers recruitment costs to find a replacement
- Loss of profits during the period of disruption
- Pays any penalties for late or non-delivery of goods or services
- Pays company sick pay (with critical life cover)
- Protects from business debt
- Available to sole traders
- Protects families from business debt especially sole traders
LV= offers a range of business protection insurance which includes key person cover which gives the business comfort and protection if a key person dies or is critically ill if the critical illness cover is added to the policy. It supports the business financially to recover from losing a key person temporarily or permanently.
LV=’s key person cover is available for any person who is detrimental to the business’ profits and it will provide financial support to help you recruit a replacement and pay the company sick pay under the critical illness cover. It also offers a range of services that protect the business from bad debts and financial difficulties.
5. NFU Mutual
Some of the features and benefits of NFU Mutual’s key person insurance.
- Key person protection with optional critical illness
- Businesses benefit from the lump sum payout
- Pays out when the key person is diagnosed with a terminal illness or dies
- Most beneficial to businesses that are dependent on a key employee’s knowledge and skills
- Assists with recruitment costs
- Compensates the business for loss of profits
- Flexible cover amount and length of term
- Cover can be based on the individual’s salary or their contribution to the profits
- Increasing cover available
- Cover is provided in partnership with AIG
NFU Mutual offers key person protection with optional critical illness cover in partnership with AIG. Their key person cover will pay out a lump sum to the employer when the key person covered dies or if included in the cover, they become terminally ill. The key person is defined as someone that the business is dependent on for their knowledge or skills.
NFU Mutual‘s key person cover gives businesses the financial support to recruit a replacement as well as compensating them for any financial loss of profits resulting from the key person dying or being critically ill (if critical illness included).
Some of the features and benefits of Hiscox’s key person insurance.
- Personal accident insurance that also covers a key person
- Cover to help your business survive if a key person was unable to work
- Gives protection for employers and employees
- Protects your business income
- Sum lump up to £100,000 payable to the business on injury or death of an employee
- Recruitment expenses up to £10,000
- Training budget of up to £10,000
- Funeral expenses up to £5,000
- Weekly payments whilst the insured employee is unable to work
- Offers a range of policies that can be combined into a single plan
Hiscox offers a range of insurance policies to businesses that can be combined to create a single tailored plan that covers all of your business insurance needs. They offer personal accident insurance that provides cover for both the employee and the employer that will help the business financially if needed.
Hiscox’s personal accident insurance is suitable for small businesses that are at risk if a key person or the owner is injured and unable to work. Their cover offers a range of support when needed to help the business to keep running and if the worse happens the cover includes funeral expenses.
7. Legal & General
Some of the features and benefits of Legal & General’s key person insurance.
- Insurance safeguard to help your business
- Covers death, terminal or critical illness
- Protects against financial loss
- Covers life assurance and critical illness if selected
- Pays out a lump sum to the business on the death of the employee
- Helps replace lost profit
- Can be used to hire a replacement
- Financial injection when needed
- Available direct from them
- Award-winning provider
Legal & General are a well-known, award-winning provider of insurance products for domestic and business markets. They provide a range of business protection products which includes key person insurance which protects against a loss of a key person and lessens the impact that has on the business.
Legal & General’s key person insurance covers death and terminal or critical illness if you select to cover that. If the worse happens and the key person passes away the company will receive a lump sum which can help replace the profits that may be lost from the person being unable to work and help to recruit a replacement.
8. Royal London
Some of the features and benefits of Royal London’s key person cover.
- Protection against the impact of losing a key person
- Employee protection providing a regular income or lump sum
- Can help repay loans
- Can protect the value of your business
- Can protect against a loss of profits
- Cover the cost of replacing the employee
- Includes Helping Hand support to access recruitment and legal advice
- Dedicated nurse to help the family
- Medical support helpline
- Available only through an independent financial adviser
Royal London offers a range of business protection insurance that includes key person insurance which protects businesses against the risk of losing a key person in their business from death or critical illness.
With Royal London’s key person cover, you can opt to protect loan repayments, the value of your business, the loss of profits and the cost of replacing the key person. It also comes with extra services that include a Helping Hand service that supports employers in replacing the member of staff and advising them. It also supports the individual with a dedicated nurse and medical support helpline.
9. Tokio Marine
Some of the features and benefits of Tokio Marine’s key person insurance.
- Individual or group personal accident cover
- Includes key man insurance
- Cover up to $6 million for a key person
- Flexible and bespoke solutions available
- Covers accidental death
- Covers accident and sickness
- Large international provider
Tokio Marine is an international insurance company who offers a variety of cover for businesses in the UK which includes business protection products such as personal accident cover which can be purchased for individuals or the whole business. As part of the personal accident cover, you can select keyman insurance.
Tokio Marine’s cover for a key person can pay out up to $6 million and they provide a bespoke service to create a policy that suits the individual and business. They cover accidental death, accidents and sickness as part of their wider cover.
Some of the features and benefits of Vitality’s key person cover.
- Provides compensation for businesses when a key person is absent
- Helps to mitigate the risk of losing a key person
- Covers death and severe illness
- Lump sum payout
- Makes up any loss in profits
- Can factor in any loan repayments
- Covers the cost of recruiting a replacement
- Helps you keep your business on track
- Suited to smaller businesses
- Available direct
Vitality offers a specific key person insurance product that helps businesses to mitigate against the risk of losing a key person. They have created this product to meet the needs of smaller businesses that tend to be more heavily reliant on key people or specialists as they can be more greatly impacted by their absence which can result in a loss of profits.
Vitality will pay out a lump sum to the business in the event of the key person insured dying or becoming severely ill. This payout can help with making up any lost profits, repay any loans or recruiting a replacement.
11. Scottish Widows
Some of the features and benefits of Scottish Widows’ key person insurance.
- Covered by their business protection cover
- Covers a person whose absence would affect the business’ profitability
- The owner can be the key person who is insured but the business must own the policy
- Tailored policy with a choice of cover
- Choose your own level of cover and whether you want increasing or decreasing cover
- Life cover with optional critical illness cover
- Terminal illness is included with life cover as standard
- Premium Protection is also available
- Five-year renewable cover option
- Available through a financial adviser
Scottish Widows provides a range of business insurance solutions to help mitigate for a variety of risks which includes business protection cover. This product offers several options including key person and relevant life cover which benefit different people. The key person cover provides protection for the business.
Scottish Widows tailor their policies to the individual and business and their cover is available for business owners that may also benefit from taking out premium protection so that they don’t have to continue to pay the premiums whilst ill. They offer life cover with or without critical illness cover but include terminal illness cover as standard.
Some of the features and benefits of Aviva’s key man insurance:
- Cover available for public and private limited companies, limited liability partnerships, individual partners of a partnership and sole traders.
- Premiums start from as little as £5 a month.
- Options available: increasing cover, waiver of premium, total permanent disability, conversion and renewal options.
- The cover amount can be paid as a lump sum or in annual instalments.
- Specialist team of financial and medical underwriters.
- Online ‘virtual underwriter’ gives you an immediate decision.
- A straightforward claims process backed by a dedicated UK-based claims team: your clients can claim online, over the phone or by post
While Aviva does not advertise it’s key man insurance products on it’s main business insurance website, they do have a lot of information for brokers and advisers on their Aviva for advisers website.
Some of the features and benefits of Aegon’s key person insurance.
- Flexible and comprehensive business protection
- Protects the business from the financial impact of losing a key person
- Covers individuals aged 18-70
- Terms of 5-10 years
- Includes guaranteed insurability options
- Can be purchased as part of a wider business protection plan
- Immediate cover facility is available
- Access to policy plus
- Online application service
- A dedicated team of experts to support you
Aegon is a financial services business offering savings, investments, pensions and protection products including key person insurance. They offer a flexible and comprehensive business protection product that is available in a package that includes life protection, critical illness protection, life with critical illness protection, key person income protection and executive income protection.
Aegon’s business protection is available to individuals aged 18-70 for terms of 5-10 years. They offer guaranteed insurability options allowing increases in the benefit amount under some circumstances. The cover includes Policy Plus which provides support and guidance at no additional cost. This product is only available through an intermediary.
Some of the features and benefits of Zurich’s key person insurance.
- Covers an individual in the event of death or critical illness
- Protects business profits, replacements costs and liabilities
- Covers individuals 16-89 years old
- Terms of 1-50 years
- Covers up to 51 serious conditions
- Option to add further cover such as children’s benefit, total permanent disability
- Choice of cover plans
- Choose between level, decreasing or increasing cover
- Guaranteed premiums
- Available through intermediaries
Zurich is a leading insurance provider that also offers savings and pensions. They offer a range of business protection products which includes key person insurance. Their key person insurance provides protection to businesses in the event of a key person dying or becoming critically ill.
Zurich’s key person insurance protects against the loss of profits, replacement costs and liabilities of losing the key person so the business can focus on recovering. They offer a choice of plans which include life cover, life cover and critical illness, and life cover and critical illness select which can be purchased as level, decreasing or increasing cover.
What is the meaning of key man insurance?
Key man insurance is classified as a key person insurance policy or key person protection that protects your organisation financially by providing a financial lump sum payment in the event of the death of a key employee. This might be anyone vital to the company’s daily operations.
The key person insurance has two options:
Life cover only: This provides a lump-sum payment to the firm in the event of a key employee’s death or terminal illness.
Life and critical illness cover: This protects the organisation if a key employee contracts a terminal disease such as cancer or suffers a heart attack or a stroke.
Key man insurance intends to protect businesses, especially small businesses, from the financial impact of losing key staff or small business owners who help make it run successfully.
The business may use the insurance profits to cover expenditures until a successor is found. The business may use it to repay loans, distribute funds to investors, compensate departing employees, and generally wind down the business efficiently.
In a tragedy, key person protection provides the company with an alternative to instant bankruptcy or taking a substantial financial loss.
What is a key person risk?
The risk associated with key personnel is the risk to your business’s operations if one of these key workers is absent for an extended length of time or if the key person dies.
It might be a months-long absence caused by a critical illness or an indefinite absence, or an announcement of retirement. Regardless, losing them will curtail or cease activities and may negatively impact your business’s day-to-day operations.
Most businesses frequently take out key person protection on the following individuals:
– Executives in the C-suite like the CEO, CFO, etc.
– Additional staff in management roles like the vice president and director-level employees.
– Employees that possess a necessary skill set that is unique to the establishment.
– Managing partners and founders who have a stake in the business’s success.
– Owners of customer connections who are accountable for ensuring the satisfaction of primary customers.
– Developing talent that is making their mark on the industry.
Is key person insurance taxable?
Key man insurance is taxed in a complex manner by HMRC, and it is mainly controlled by standards known as the Anderson Principles. The ‘wholly and exclusively test‘ is one of these criteria, and this is a significant aspect in determining whether you are required to pay tax on key man insurance premiums.
The test determines whether the policy’s proceeds will be used ‘wholly and exclusively for the business, i.e. for the business’s profit.
If this is the case, premiums are often deductible as a business expenditure against the business’s tax bill.
When a business acquires a key man life insurance policy to protect critical employees, the premiums are often tax-deductible as business expenditure and qualify for corporation tax relief. This is because the payment is not for the employee’s benefit but rather to compensate the company for the loss of that key employee.
However, the advantage will often be taxed as a trade receipt. You will want to gross up the dividend to guarantee that the net amount received after taxes fulfils your needs.
What are the benefits of key person insurance?
The most significant advantage of key person cover is the sense of security it can provide and business protection. The financial cushion offered by key man insurance policies will significantly reduce the impact on the business.
Another benefit of a key man insurance policy is that it helps the whole business by ensuring continuity. It is critical when starting since your small business may be dependent on a small group of exceptional employees to help it expand, or more established companies may need personnel with a particular skill set.
A business’s biggest asset is its people. Losing a key member of staff or the employer can harm profitability, but it may also create uncertainty and encourage others to depart.
If you get a business loan, the bank may require you to purchase key man insurance to safeguard the loan and assure the lender that the loan will be repaid in the event that the person or individuals most critical to the company’s success are suddenly no longer there.
Additionally, some plans let you add an option to safeguard against any loss of earnings or the expenses associated with replacing a lost employee.
Who owns a key person policy?
The company owns a key person life insurance policy and pays the premiums. When an important employee dies, the business receives a death benefit. The business can use this money to assist in replacing revenue lost while looking for a replacement.
Who is the beneficiary under key person life insurance?
The business, not the person, is the beneficiary of a key man insurance policy.