Business Protection and Key Person Insurance for owner managed companies
Life and critical illness cover owned by the company, so that losing a director, shareholder or top performer does not also cost you the business. A specialist broker can help you weigh up key person, shareholder and loan protection.
- A cash sum paid to the company, not the individual
- Funds for shareholders to buy out a deceased owner's shares
- Business loans repaid if a guarantor dies or is seriously ill
Reviewed October 2026 by the MyBusinessComparison.com editorial team
What is key person insurance?
Key person insurance is life or critical illness cover that a company takes out on a director or employee whose loss would damage its profits. The company owns the policy and pays the premiums, and the payout goes to the company to cover lost profit, recruitment costs or debts while it adjusts.
It sits within a wider group of covers known as business protection. Alongside key person cover, most companies with more than one owner look at shareholder protection, which funds the purchase of a deceased owner's shares, and at loan protection for borrowing that a director has personally backed.
Unlike most of the covers on this site, these are life policies. They are priced on the age and health of the people insured, and are written by life insurers rather than by the property and liability insurers behind most business packages.
Key person cover at a glance
- Who is insured
- Directors, shareholders, partners or senior staff the business relies on
- Who is paid
- The company, or the remaining owners for shareholder protection
- Events covered
- Death, and terminal or critical illness if chosen
- How the sum is set
- Lost profit, replacement cost or the debt to be repaid
- Priced on
- Age, health, smoking status, sum insured and term
- Compulsory?
- No, though lenders and investors often ask for it
Types of business protection cover
Most companies need two or three of these, set up together so that each one answers a different question about what happens if someone is lost.
Key person life cover
A lump sum to the company if the insured person dies during the term. It can pay for lost profit while the business recovers, fund a senior hire or reassure lenders and customers.
Key person critical illness
Pays the company if the person is diagnosed with a serious illness defined in the policy, such as some cancers, heart attack or stroke, and survives a short qualifying period.
Key person income protection
A monthly benefit to the company while a key employee is off work long term through illness or injury, helping to fund cover for their role.
Shareholder protection
Life cover on each shareholder, backed by an option agreement, so the others can buy the shares from a deceased owner's family at a fair value and keep control of the company.
Partnership and member protection
The same principle for partnerships and LLPs, funding the purchase of a partner's interest so the practice keeps running and the family is paid out.
Read more about insurance for professional firms
Loan and debt protection
Repays business loans, overdrafts or a director's loan account if a guarantor dies or becomes seriously ill, so the debt does not fall on the company or the family.
Relevant life cover
An individual death in service policy paid for by the company, with benefits going to the employee's family through a trust. Often used for directors when there are too few staff for a group scheme.
Other covers for the people side of the business
- Group personal accident: pays fixed benefits to staff for accidental injury, at work or around the clock
- Directors' and officers' insurance: for allegations of mismanagement made against the board personally
- Management liability: combines director, employment practices and company legal cover in one policy
- Business interruption: covers lost profit after damage to premises, which key person cover does not
Which companies need key person insurance?
The test is simple: if one person's death or long illness would cut turnover, unsettle lenders or put control of the company in doubt, protection is worth pricing.
Several owners in the business? Shareholder protection is usually arranged alongside key person cover. Cover for the board itself sits under directors' and officers' insurance.
- Owner managed companies: where the founders win most of the work and hold the key relationships
- Companies with several shareholders: to stop shares passing to a family that may not want to be involved, or may want to sell
- Technology companies: dependent on a technical founder or lead developer who holds knowledge no one else has
- Construction and contracting firms: where a contracts director's name and track record secure tenders and bonding
- Recruitment agencies: with top billers whose client relationships drive a large share of fees
- Professional practices and LLPs: accountants, surveyors and consultants funding the exit of a partner
- Clinics and healthcare businesses: built around a lead clinician whose absence would stop treatment income
- Manufacturers: relying on a technical director who knows the processes and the major customers
- Wholesalers and distributors: where a sales director personally holds the major retail and trade accounts
- Firms with business borrowing: where a director has personally backed a bank loan, overdraft or asset finance
- Investor backed companies: where funders want proof that the loss of a founder will not sink their investment
How much does key person insurance cost?
Because these are life policies, the price depends far more on the person insured than on the business. These are the details insurers rate.
Age of the person insured
Older lives cost more to insure, and the premium is usually fixed at the age when cover starts.
Health and lifestyle
Medical history, weight, blood pressure, smoking and alcohol use all feed into the price, and may lead to a medical report.
Amount of cover
Insurers need the sum to be justified, usually by salary, share of profit, the cost of replacing the person or the debt being protected.
Length of the term
Longer terms cost more. Many companies match the term to a loan, a planned exit or the years the person is expected to stay.
Type of cover
Adding critical illness to life cover raises the premium noticeably, and income protection is priced on occupation and waiting period.
Occupation and pursuits
Site based roles, frequent travel to higher risk regions and hazardous hobbies can mean extra premium or an exclusion. Trip risks themselves sit under business travel insurance.
What key person insurance does not cover
Claims on protection policies rarely fail, but when they do it is usually for one of these reasons.
- Medical conditions or habits that were not disclosed on the application, which can lead to a claim being reduced or refused
- Illnesses that do not meet the exact definition in the critical illness section, or where the person does not survive the qualifying period
- Suicide within the first year of cover, which many life insurers exclude, along with self inflicted injury on some critical illness and income protection plans
- Specific conditions or activities excluded by the insurer at the start because of medical history or hazardous pursuits
- Death or illness after the term ends, or after premiums stop and the policy lapses
- Claims about how directors manage the company, which belong under D and O cover
- Compensation claims from employees hurt at work, which fall under employers' liability insurance
- Lost profit from damage to premises, which needs business interruption insurance
Key person insurance or shareholder protection?
The two are often confused because both insure the same directors. They solve different problems.
| Feature | Key person insurance | Shareholder protection |
|---|---|---|
| Purpose | Replaces profit and covers costs after losing a vital person | Funds the purchase of a deceased owner's shares |
| Who owns the policy | The company | Usually each shareholder, often held in trust |
| Who receives the money | The company | The other shareholders, who pay it to the estate |
| Supporting paperwork | Board approval and evidence of the sum needed | An option agreement between the shareholders |
| Who is insured | Anyone critical to profit, owner or not | Shareholders only |
| Common outcome | The business keeps trading through a difficult period | Control stays with the people running the company |
How to arrange key person and business protection
Getting the structure right matters as much as the price, so start with the questions below.
Identify the people at risk
List the directors, shareholders and staff whose loss would hit profit, contracts, lending or control.
Put a figure on each loss
Use profit contribution, replacement and recruitment costs, outstanding loans and share values to justify the sums.
Agree the paperwork
Shareholder protection needs an option agreement and often a trust. Your solicitor and accountant are part of this step.
Prepare for underwriting
Each person insured answers health and lifestyle questions, and larger sums may need a medical report or tests.
Review it as the company grows
Revisit the sums when profits, valuations, borrowing or shareholders change, so cover keeps pace.
Talk it through with a broker
Tell us who the business relies on and a specialist broker will talk through the protection options with you.
Compare quotesKey person insurance FAQs
How much does key person insurance cost?
The price mainly reflects the age, health and smoking status of the person insured, plus the amount of cover, the term and whether critical illness is included. Two directors at the same company can cost very different amounts. A broker can compare insurers, which often underwrite the same person differently.
How much key person cover does my company need?
Enough to cover the profit you would lose, the cost of finding and training a replacement and any debts tied to that person. Insurers expect the figure to be justified, often by a multiple of salary or the person's share of profit, so have recent accounts ready.
Who pays the premiums and who gets the money?
For key person cover, the company pays the premiums and receives the payout. For shareholder protection, policies are usually owned by the individual shareholders or held in trust, and the money goes to the surviving owners to buy the shares.
Are key person insurance premiums tax deductible?
Sometimes. The tax treatment of premiums and payouts depends on how the policy is set up and what it is for. Get advice from your accountant before the policy starts, because the structure is hard to change later.
Can a company insure a director who is also a shareholder?
Yes. A director who owns shares can be covered both by key person insurance, for the profit the company would lose, and by shareholder protection, for the value of their shares. The two policies are set up separately.
What happens to the policy if the key person leaves?
The company can usually cancel the policy, or in some cases transfer it to the individual. Cover does not automatically end, so it is worth reviewing as soon as someone leaves to avoid paying for protection the business no longer needs.
Do we need a medical to take out key person cover?
Not always. Many applications are accepted on the answers to health questions alone. Larger sums, older lives or a complex medical history may lead the insurer to request a doctor's report or a short medical examination.
Is key person cover the same as relevant life cover?
No. Key person cover pays the company. Relevant life cover pays a lump sum to an employee's family if they die, with the company paying the premium. It is a benefit for the individual, not protection for the business.
How do I get a key person insurance quote?
Make a request from this page and a specialist broker will call to discuss it. Have the ages and roles of the people to insure, how much cover you think is needed and why, and details of any loans or shareholder agreements.
Protect the company from losing the people it relies on
Talk through key person, shareholder and loan protection with a specialist broker and get cover set at the right level.