Key person vs relevant life comes down to who the policy protects: key person insurance protects the business and pays the company, while relevant life cover protects one employee's family and pays through a trust. Shareholder protection is a third arrangement, in which each owner's life is insured so that the others can buy that owner's shares if they die.

Unsure which of the three fits your company? An FCA-authorised broker can set them side by side for your firm on a free call-back, arranged from the form on this page.

Who is insured, who pays and who gets the money?

The table sets out each arrangement as the insurers' own documents describe it. Aviva's is its key features document for relevant life, and Legal & General (L&G) has a key person page for businesses; L&G's relevant life and share protection guides are written for advisers, and the table labels them so.

Relevant lifeKey personShareholder protection
Who is coveredOne employee; Aviva counts a sole PAYE director of a limited company as one (Aviva key features; L&G adviser guide)Someone crucial to running the business, such as a director or employee whose skill, knowledge and experience affects revenue (L&G key person page)Each owner, on their own life, in L&G's suggested set-up (L&G adviser guide)
Who owns and paysThe employer applies and pays (Aviva key features)The employer owns the policy and pays for it (L&G key person page)Each owner undertakes to pay the premiums on their own life (L&G adviser guide)
Who receives the payoutThe employee or their beneficiaries, through a trust (Aviva key features)The employer, directly (L&G key person page)The other owners, through a trust, to buy the shares (L&G adviser guide)
PurposeA lump sum for the employee's family (L&G adviser guide)Help with losses such as lost profits or finding and hiring a replacement (L&G key person page)Lets the surviving owners buy the deceased owner's share, so the family receives cash rather than a share of the business (L&G adviser guide)

Our guides to relevant life insurance and key person insurance cover each in full, and who owns a key person policy covers the trust question.

How does HMRC treat each arrangement?

HMRC's manuals draw the main line, and it runs through the payee. One condition for a relevant life policy in HMRC's Employment Income Manual (EIM15045, read 26 October 2026) is that only individuals and charities can benefit, and EIM15045 points to the Insurance Policyholder Taxation Manual (IPTM7035) for that test. IPTM7035's own example of a policy that fails it is one a company holds on its employees' lives with the company itself as beneficiary of the death benefits. A key person policy works exactly that way, so it sits outside the relevant life rules.

The same page continues: "So, for instance, business-cover type policies which pay benefits to other partners of a partnership or shareholders of a company to enable them to buy out the share of the business owned by the deceased partner or shareholder are not excepted group life policies." That is the test for relevant life status, and it is why shareholder protection is a separate arrangement.

Key person cover is judged by a different test. HMRC's Business Income Manual (BIM45525) allows the premiums only where both of its conditions hold: the cover exists purely to make good trading income the business could lose without that person, rather than a capital loss, and any life policy is plain term cover with nothing else attached. If both hold, what the policy pays is taxed as part of the employer's trading income. The relevant life tax treatment page covers the other side.

For relevant life, Aviva's key features (EDCO1771 0126, January 2026) say "HMRC usually views the premiums as an allowable business expense for the employer", and that the premiums are not treated as a benefit in kind for the employee. That is Aviva's account of the usual position, not a guarantee. Rules like these are open to change, and none of this is advice on your own tax.

Can a relevant life policy stand in for key person or shareholder cover?

Legal & General says not, for its own plan. Its Technical Guide to the Relevant Life Plan (W13965, June 2026, for advisers) states: "L&G’s Relevant Life Plan should not be used for Business Protection purposes (for example Key Person Protection and Shareholder Protection)."

The mismatch is in the payee. A relevant life payout goes to trustees for the employee's family; a key person payout is meant for the company, and shareholder protection pays co-owners. Which structure suits a company with one director-shareholder, or several, depends on its circumstances; the broker can go through your set-up when it calls back.

Where a director's death would significantly affect the company's share value, HMRC's BIM45530 says one purpose of insuring them as a key person may be the non-trade one of protecting the value of their shares, which bears on the sole-purpose test; key person insurance and tax relief explains how HMRC weighs it.

Where does shareholder protection fit?

It sits beside the other two, not between them. L&G's Share Protection Technical Guide (W13813, February 2026, for advisers) says the aim is to let the surviving owners buy the deceased owner's share from the estate, so the family has a willing buyer and receives cash rather than a stake in the business. In L&G's suggested set-up, each owner takes a policy on their own life, written in trust for the other owners from the outset, alongside a written agreement between the owners.

The premium position differs from relevant life. The same guide says that where a company pays the premium for a shareholding director, it is classed as that director's remuneration, so income tax and, where applicable, National Insurance contributions are due on it. The agreement, the trust and the inheritance tax effect of a binding sale contract are set out in key person insurance and shareholder protection, and the price side in shareholder protection cost. The wider picture is in business protection insurance.

Weighing all three for one company? Our form on this page books a no-charge call from a broker, who can walk through how each could be arranged.

Frequently asked questions

Can relevant life cover be used for a mortgage?

It can sit beside a mortgage, but it does not pay a lender: the money goes to the trustees for the family, and Aviva's key features say the cover pays out if the employee dies or is diagnosed with a terminal illness "while employed during the policy term". The same document lets the employer, where the option is available, raise the cover without further health questions, up to the employee's 55th birthday, when the employee increases their mortgage (by no more than the mortgage increase, within Aviva's overall limits), and lengthen the term in line with a longer mortgage term. Cover built for the mortgage itself is explained in life insurance and mortgage protection.

Can a company with one director choose relevant life instead of key person cover?

It can take relevant life on that director: Aviva's key features treat a sole director of a limited company who is paid through PAYE as an employee. That pays the director's family, though, and does nothing for the company's own loss, which is the job of key person cover; L&G's key person page says a business must be able to show it would lose profits in the key person's absence to insure them that way.

If your own case differs from these examples, raise it with the broker on the call-back, which costs nothing.

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