Key Man Insurance UK

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What Is Key Man Insurance

Key man insurance (also known as key person insurance) is an important type of life insurance policy that businesses can use to protect themselves against the financial risks associated with the loss of a key employee. It provides businesses with vital financial security in the event of a key employee’s death, disability, or critical illness. 

The concept of key person cover may be unfamiliar to some, so it’s important to understand what it is and how it works. From how premiums are calculated, to who can benefit from the policy.

For business owners, having key man cover can offer peace of mind and financial protection when they most need it. By understanding exactly what this type of policy entails, employers can make sure that their businesses are protected in any situation.

Types Of Key Man Protection

There are several different types of key person insurance:

  • Key Man Life Insurance – The majority of policies are taken out as a life insurance policy owned by the business and taken out on the life of a valuable employee or “key person”. If they die, the policy pays out a lump sum benefit to the business. 
  • Key Person Income Protection – Provides replacement income if a key member of staff suffers a serious illness/injury leaving them unable to work. Monthly payouts cover their lost productivity.
  • Partnership Protection – Insures all partners in a partnership firm under one policy. Proceeds fund the buyout of a deceased partner’s interest so the firm can continue.
  • Shareholder Protection – Similar to partnership protection but for incorporated businesses. Pays out on the death of a shareholding director or partner so remaining owners can purchase their shares.
  • Critical Illness Cover – Provides a lump sum if a key person is diagnosed with a serious illness, allowing the business to cover absence costs. Can be a standalone or a rider on life insurance.

Benefits Of Key Man Insurance

There are a few ways that a key person insurance policy can benefit a business here in the UK:

  • The payout can provide immediate funds to financially survive the loss of losing a key employee and cover the costs of finding suitable replacement. This disruption can seriously impact operations, so the cash injection helps smooth the transition.
  • The money can be used to repay outstanding debts that the key person is guarantor for which would otherwise fall on the business. This prevents a cash crunch.
  • If structured properly, the payouts are tax-free and the premiums can be a deductible business expense.
  • Having policies in place for key roles or directors can reassure customers and suppliers that the business is prepared for unexpected transitions. This strengthens confidence.
  • For small businesses, the sudden loss of key people could be catastrophic without this backup plan. 

So in a nutshell, it’s about ensuring continuity, stability and survival if crucial employees are unexpectedly lost. The payout buys time to get back on solid footing.

Who Should Consider Key Person Insurance

Keyman insurance can be a valuable asset for businesses of any size. It is important to consider who may benefit from it and understand the associated risks.

One of the primary groups who should consider key person insurance is business owners. Even if you have a limited amount of assets.

Another group who should consider key person insurance are those who have borrowed money for their business or plan to borrow in the future. The policy can help cover the debt in case something happens to the person responsible for repaying it. Also, lenders may require this type of cover before approving a loan. This is sometimes called business loan insurance.

Finally, any business with employees or partners whose expertise is vital to its success should look into a key person policy. Not only does it protect against financial losses due to their absence, but it also helps maintain continuity during difficult times and gives peace of mind knowing that there is some form of protection in place if needed. Key man insurance is an important safeguard for businesses and understanding who should consider it will help ensure that your company is properly protected in the event of an unexpected loss.

How To Choose A Key Man Insurance UK Provider

Choosing the right provider for your key man cover can seem tricky, but here are a few tips that can help:

  • First up, think about going through an independent broker like us! A broker can search the entire market for you and find the most competitive options, rather than just showing you policies from one insurer. 
  • Make sure to ask any potential providers if they specialise in key man cover. It’s a bit more niche than standard life insurance, so you want an insurer who knows the specific quirks and details to look out for. Experience counts.
  • Also, consider financial strength – this policy could be in place for many years, so you want to be confident the insurer will still be around at claims time. Check their ratings on places like Defaqto
  • Ask about the claims process too. How quickly will your business get the payout after submitting a claim? Fast access to funds will be crucial to get back on your feet after losing a key employee.
  • Flexibility in policy terms, conversion options, early payout for terminal illness etc. is handy too. The more tailored to your needs, the better.
  • Critical Illness Cover – Make sure the provider offers comprehensive critical illness and it meets the standars set by the ABI (Association Of British Insurers)

And that’s where a whole of market broker can be great. We can shop around to get you the right customised policy for your situation, rather than just offering you one option. Let us compare and find a great deal!

The Cost Of Key Man Insurance

When it comes to calculating what a key person policy will cost here in the UK, insurers look at a few factors that can make premiums higher or lower.

Obviously, the amount of cover makes a difference – a £500k policy will have higher premiums than a £200k policy, for example. They also consider the key person’s age and health – a 20 year old in perfect shape will get lower rates than a 60 year old with ongoing health conditions.  Certain hazardous occupations or activities can bump up costs too. Adding critical illness to a policy will also make it a lot more expensive due to the much higher risk of making a claim. 


But How Much Is Key Man Cover?

Below are a few examples of how much a key man insurance uk policy can cost:


  • 50 year old £100,000 Life Only = £13.68 per month (Guaranteed Premium for 10 years)
  • 50 year old £100,000 Life & Critical Illness = £79.30 per month (Guaranteed Premium for 10 years)

*Quotes Examples Are Based On Healthy Non Smokers in non dangerous jobs as of 31/10/2023

UK Tax Implications Of Key Person Insurance

In some cases, premiums paid for key person insurance may be deductible as a business expense. This can provide significant savings. However, the exact deductions will depend on the specifics of the policy and the individual circumstances. 

It’s important to consult with a qualified accountant or financial advisor to ensure that you understand all of your options and any potential tax implications before taking out such a policy. For more information on the taxation of key man insurance go here.

The Claims Process For Key Person Protection

Making a claim on a key person policy here in the UK typically follows these steps:

  • First, the business has to notify the insurer of the death of the insured individual as soon as possible. Usually just a quick call or email to start the process.
  • Next, you’ll need to complete a claim form providing details of the deceased’s identity, the circumstances of their death, and policy information. Medical records or a coroner’s report or death certificuit may be requested too.
  • The insurer will review the claim info and confirm eligibility. They may ask some follow up questions or request supplementary documentation.
  • Once the claim is validated and approved, the insurer will issue the tax-free lump sum paid directly to the business, usually within 1-2 weeks.
  • If any dispute arises over the claim, the insurer may hold funds until resolved. But that’s rare.

So in most cases, it’s a fairly straightforward process resulting in quick payment, which is critical at a time of disruption.

Frequently Asked Questions

Key man insurance is designed to protect a business from financial losses if a key employee passes away or becomes critically. It provides a lump sum payment that can be used to recruit and train a short term or perminant replacement, cover lost revenue, and pay-off any debts associated with the person’s death or disability. But just how does it work?

The key person covered by this insurance is typically the owner of the business or someone who plays an integral role in its day-to-day operations. This could be someone whose expertise and knowledge is essential to the company’s success, such as a lead researcher or head engineer. Premiums are paid for the policy which covers the company in case of loss of life or disability of the insured individual.

When filing a claim, the business must prove that it has suffered financial losses due to their key employee’s death or disability. If approved, they will then receive a payout which can be used to cover costs associated with replacing their key employee, hiring new staff and training them on their job duties, covering lost revenue and paying off any debts related to the incident.

This type of insurance is an important safety net for businesses that rely heavily on one person’s contributions and expertise. Without it, they would have no financial cushion when facing these unexpected tragedies – making it an invaluable asset for any organization that wants to ensure its long-term survival.

When it comes to key man insurance, one of the most important questions to ask yourself is: how much coverage do I need? It’s critical to ensure that you have the right amount of coverage in place for your business.

The cost of key man insurance will depend on a variety of factors, such as the size and complexity of your company, the level of risk involved, and the economic conditions in your industry. To determine the amount of coverage you need, you’ll need to consider all these factors and develop an appropriate strategy. Additionally, you may want to consult with an experienced insurance broker who can provide advice and help you choose the right policy for your needs.

It’s also important to keep in mind that key man insurance isn’t just about protecting your business from financial loss due to a key person’s death or disability; it’s also about protecting your company’s reputation. By having sufficient coverage in place, you can make sure that any potential losses are quickly and effectively addressed so that your business continues to thrive.

Ultimately, when it comes to how much key man insurance is necessary for your business, there is no one-size-fits-all answer – it depends on a variety of factors unique to each situation. By taking the time to assess these factors carefully and discuss them with an experienced insurance broker, you can ensure that you have the right amount of coverage in place for your business’s needs.

One of the most important considerations is how long the policy term should be. Generally speaking, this will depend on the business needs and goals that are to be covered by the policy. For many a term of 5 to 10 years is normally sufficient. Companies are not tied in, so can always cancel if it’s no longer needed. 

The length of the policy term can also have an effect on its cost. Generally speaking, shorter terms are cheaper than longer ones as there is less risk involved for the insurer. However, it’s important to remember that getting adequate coverage for your business is more important than saving money on premiums. It’s always worth doing some research and comparing different providers to find the best deal that meets your needs.

Be sure to read all of the terms and conditions carefully before signing any documents so that you know exactly what is included in your policy. This will help ensure that you get the right level of protection needed for your business over an appropriate period of time.

In general, there are no restrictions on how the money from a key man insurance policy can be spent by the business. But typically this could include covering financial losses or paying off company debt. 

It’s also worth noting that businesses might not be allowed to take out policies on some individuals if they don’t meet certain criteria related to age, health and lifestyle choices. Knowing who you’re able to insure will help you determine what kind of protection you need and whether taking out a key man policy is right for your business.

When it comes to key man insurance, understanding what happens in the event of the key man’s death or disability is an important part of the process. If either of these events occurs, there are several potential outcomes depending on how you have set up your policy.

First and foremost, the policy will pay out a lump sum according to its terms. This money can be used to cover expenses related to replacing the deceased or disabled person within the business. It can also be used for any other purpose that the company sees fit. This could include things such as compensating their family members or investing in a new product line.