Every successful business has those standout individuals whose skills, relationships and leadership are essential to its success. But what would happen if one of them was suddenly unable to work due to serious illness or death?

For many UK businesses, losing a key person can have devastating consequences – from lost income to damaged client confidence and delayed growth plans.

That’s where Key Person Insurance (sometimes called Key Man Insurance or Key Employee Cover) comes in. This valuable form of business protection insurance helps companies safeguard their financial stability and continuity when the unexpected happens.

What is Key Person Insurance?

Key Person Insurance is a policy that protects a business against the financial impact of losing a vital member of staff due to death or critical illness.

The policy is owned by the business, which pays the premiums and receives the payout if a claim is made. The lump sum payment provides a financial safety net at a time when the business may be most vulnerable.

The funds can be used to:

✅ Replace lost profits and maintain cash flow
✅ Recruit and train a replacement for the key individual
✅ Repay business loans or protect investor confidence
✅ Reassure clients, suppliers and employees that the company remains stable

In essence, Key Person Cover helps your business continue operating smoothly, even if a pivotal person is no longer able to work.

Who is a “Key Person”?

A “key person” is anyone whose knowledge, experience, reputation or skills are critical to your business’s financial performance.

This might include:

• Founding directors or shareholders who drive strategy and growth
• Top salespeople or business developers responsible for major clients or contracts
• Technical specialists or engineers whose expertise underpins operations
• Finance or operations leaders who manage crucial business functions

A good rule of thumb: If losing this person would seriously affect profits or client confidence, they’re a key person.

How Key Person Insurance works

1. The business takes out a policy on the life of the key employee or director.
2. The company pays the premiums and is the policy owner and beneficiary.
3. If the insured person dies or is diagnosed with a critical illness, the business receives a lump sum payout.
4. The funds can be used to stabilise operations, cover lost income, repay debts, or fund recruitment and training.

This protection can be structured alongside other forms of business protection, such as:

• Shareholder or Partnership Protection – ensuring ownership is retained by the business rather than the estate of the deceased.
• Relevant Life Cover – an alternative for directors or employees that provides tax-efficient death-in-service benefits.

Is Key Person Insurance tax deductible?

Whether Key Person Insurance premiums are tax deductible depends on your business structure and how the policy is set up.

Generally, if the purpose is to protect the company’s profits (not the individual’s estate or shareholders), premiums may be allowable as a business expense. However, the payout may be subject to corporation tax.

It’s always advisable to seek advice from your accountant or a specialist insurance broker before arranging cover.

How much Key Person Cover do you need?

The level of Key Person Insurance should reflect the financial contribution the individual makes to your business.

Common methods to calculate this include:

• Profit contribution method – estimating the percentage of profits attributable to the key person.
• Replacement cost method – calculating recruitment, training and transition expenses.
• Loan protection method – covering any loans or investments reliant on that individual.

At Champion Health & Benefits, we work closely with businesses to assess these exposures and tailor the right level of cover for your circumstances.

Key Person Insurance vs Personal Life Insurance

While both provide valuable financial protection, they serve very different purposes.

Key Person Insurance:

• Protects the business against financial loss caused by the death or critical illness of a key employee or director.
• The policy is owned by the company, which pays the premiums.
• Any payout goes directly to the business, helping to cover lost profits, repay loans or fund recruitment.

Personal Life Insurance:

• Protects the individual’s family or dependants in the event of their death.
• The policy is owned by the individual, who pays the premiums personally (or via their employer as part of a benefit scheme).
• The payout is made to the individual’s estate or nominated beneficiaries, providing personal financial security rather than business protection.

In short, Key Person Insurance protects the company, whereas Personal Life Insurance protects the individual and their loved ones.

Why Choose Champion Health & Benefits?

As specialist Health and Protection insurance brokers, we help UK businesses identify their key people, assess financial exposure, and design tailored protection strategies that support long-term stability.

Our expert advisers can:

• Review your existing business protection arrangements
• Recommend the right level and structure of cover
• Explain tax and accounting considerations
• Ensure your policy integrates with wider continuity and employee benefits plans

We work with leading UK insurers to provide competitive, flexible Key Person Insurance and Business Protection solutions that give business owners confidence in their company’s resilience.

Protect your business today

If losing one person could leave a major gap in your business, it’s time to act.

Key Person Insurance helps safeguard your business continuity, protect profits, and give peace of mind that your company can withstand even the most unexpected events.

Speak to our specialist team to discuss how Key Person Cover can support your business protection strategy:

📅 Schedule an appointment
📞 03330 430 430 (option 2)
📧 Health@ChampionInsure.co.uk