Whether key person insurance is worth it depends on what the business would lose if one person died or became seriously ill, and on what the policy costs and demands in return. Against that loss sit the premium, the need to show the insurer a real loss of profits, and HMRC's conditions for tax relief.

An FCA-authorised broker can set those points against your own firm's figures with you, free of charge, once you have sent the short form on this page.

What does key person cover protect a business against?

The policy is owned and paid for by the business, and the money goes to the business, not to the person's family. Legal & General (L&G), on its page for business owners (read 26 October 2026), describes the idea as a business insuring "itself against the financial loss it would suffer" if a key person dies or has a specified critical illness. Our guide to what key person insurance is for covers how the policy works in full.

L&G's page lists the situations a payout "could help with":

  • loss of profits;
  • having to recruit or train a replacement;
  • the loss of important personal or business contacts when the key person is not there to maintain a contract;
  • loss of goodwill that could affect raising capital or attracting investors;
  • customers and suppliers losing confidence in the business;
  • outstanding loans.

The same page says the cover can apply to "any individual deemed to be critical to your business", and suggests asking whether any loans or financial commitments depend on that person.

Royal London's guidance for advisers (September 2025, written for financial advisers rather than the public) gives an example of what can be at stake: the sudden death of a company's head engineer while it is tendering for a major project, which "could result in the loss of that contract which may be critical to the company's future survival".

Is it any use to a charity, a church or another small organisation?

L&G frames its cover around a business and its profits. It says that to insure someone as a key person "you will need to be able to demonstrate that your business would suffer a financial loss of profits" in their absence, and that there must be a financial relationship with the person covered. How that test applies to a charity, a church or another body whose income comes from grants, donations or giving is for the insurer to decide on the application.

Whether insurers will consider a minister, a charity chief executive or a paid manager for this cover, and on what basis, is a question the broker can put to them once you have sent the form.

What does it cost, and what conditions come with it?

These are the points worth weighing against the protection:

  • The premium. It is set for the person insured, the sum and the term, so it comes from a quote. Our page on what key person insurance costs goes through what moves it.
  • Critical illness is an extra. L&G says cover for a specified critical illness applies "if chosen for an extra cost at the outset"; terminal illness, where life expectancy is less than 12 months, is included.
  • The amount has to be justified. Advisers use several methods, set out in how key person cover is calculated; the insurer will want the figure to match a real loss.
  • Tax. HMRC's Business Income Manual says premiums "will be allowable if all the following conditions are met", one being that the purpose is to meet a loss of trading income "and not a capital loss"; as a general rule, where the conditions are not met, "the premiums cannot be deducted". Both conditions, and how a payout is taxed, are set out in whether key person insurance is tax deductible.
  • It is not the only option. Relevant life cover protects an employee's family rather than the business, and executive income protection pays a regular income during illness. Who owns the policy and receives the payout is covered in who owns key person insurance.

Whether those costs are outweighed by the loss depends on how dependent the business is on one person. Key person cover is one of several kinds of business protection insurance. A broker can set these against your accounts during the call that follows a request made through the form here.

Frequently asked questions

Why is key person insurance considered important?

L&G says its own research found that 59% of businesses believe they would have to stop trading in less than a year after the death or critical illness of a key individual. That is an insurer's survey figure, not a measure of any one firm, and L&G presents the cover as a way to help the business keep trading.

Does a start-up depend on key people more than an established firm?

L&G says a start-up "may be dependent on one or two individuals who are fundamental to the business's success", whereas a larger company "may have greater resources and the ability to substitute key staff". It then adds that established companies have larger overheads, so "if the loss of one individual affects revenue, the consequences for the business could be serious", and that every business is different.

Who counts as a key person?

L&G lists roles typically covered, among them owner or founder, CEO, operations manager, sales lead and employees with lots of contacts. Whether a given person qualifies is judged by the loss their absence would cause, not by their job title.

To test the decision against your own numbers, request a ring-back via the enquiry form; a broker will work through it with you at no charge.

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