Every successful business depends on a few individuals whose expertise, leadership, or relationships are essential to growth. But what happens if one of them is suddenly no longer around?
Key person insurance—also known as keyman insurance—is a form of business life insurance that protects your company financially if a key employee dies or is diagnosed with a critical illness. For small businesses and limited companies, it offers stability during what could otherwise be a period of major disruption.
What is Death in Service Benefit?
Death in service cover is a workplace benefit. If you die while employed by the company, your employer may pay a tax free lump sum to your nominated beneficiaries. This is known as a death in service payment, and it’s often linked to your company pension scheme. It’s typically calculated as two to four times your annual salary, but the exact amount depends on your employer.
These payments are usually made via a discretionary trust, which helps avoid inheritance tax and speeds up the payment process.
Life insurance cover is a personal policy you take out yourself. It pays a life insurance payout to your chosen beneficiaries if you pass away during the policy term. You choose the amount, the length of cover, and who receives the money.
Unlike death in service, your cover isn’t tied to your job. It continues regardless of who you work for, offering long-term protection that stays with you.
Who Is Considered a Key Person?
A key person is someone whose absence would seriously impact your business. This could include:
• A founder or company director
• A senior salesperson or key account manager
• A specialist technician or product expert
• A financial controller or strategic advisor
• A lead developer or operations manager
If their loss would interrupt revenue, operations, or client relationships, they’re likely a key person.
What Does Key Person Insurance Cover?
If a key employee dies or is diagnosed with a critical illness, if included a lump sum is paid to the business. This money can be used to:
• Replace lost expertise
• Keep day-to-day operations running
• Meet loan repayments or financial obligations
• Support staff and supplier payments
• Reassure clients, partners, and investors
You can choose a policy with life cover only, or include critical illness cover as an additional layer of protection.
Comparison
| Who provides the benefit? | Death In Service | Life insurance |
|---|---|---|
|
Who provides the benefit? |
You, through an insurance provider |
Your Employer |
|
Payout Amount |
Typically 1-4 times your salary |
Flexible, based on your needs & policy choice |
|
Medical Exam |
No Medical Exam required |
May require, depending on policy |
|
Cost |
Low cost or free (employer paid) |
Premiums based on health, age and coverage level |
The key difference is who owns and benefits from the policy.
• Key person insurance is owned by the business and pays out to the business.
• Personal life insurance is owned by the individual and pays out to their family or chosen beneficiaries.
Keyman cover is designed to protect your company’s financial stability—not the individual’s dependents.
Why Do Small Businesses Need Key Person Insurance?
Is Key Person Insurance Tax-Deductible?
In some cases, yes—but it depends on how the policy is set up. According to HMRC guidance, premiums may be treated as a deductible business expense if:
• The policy is to protect trading profits, not capital
• The business is both policy owner and beneficiary
• The policy is not part of an employee reward or benefit package
However, tax treatment varies by case—so always check with your accountant or a financial adviser.
How Do You Set Up a Key Person Policy?
The process typically includes:
• Identifying the individual(s) to insure
• Providing details of their role and business value
• Completing a company and financial overview
• Supplying medical information, if required
Once approved, the business becomes the policy owner and pays the premiums. Cover starts as soon as the policy is in force.
How Long Should the Cover Last?
Policy terms can be flexible and are often linked to specific needs, such as:
• The length of a business loan
• The timeline of a critical project
• A founder’s expected retirement or exit
You might choose a fixed short-term plan (e.g. 5 years) or opt for more flexible cover depending on the situation.
What Happens if the Key Person Becomes Critically Ill?
If you include critical illness cover, the business receives a payout if the insured person is diagnosed with a serious condition such as cancer, stroke, or heart attack.
This can help fund temporary leadership support, operational changes, or recovery periods—keeping your business resilient through uncertainty.
Protect Your Business with Confidence
At Pineapple Insurance Services, we work with businesses of all sizes to safeguard their most valuable people. Whether you’re covering a director, a specialist, or your top revenue generator, we’ll help you design a policy that matches your business needs.
We support you with:
• Selecting the right level of cover
• Clarifying tax implications
• Managing policy setup, renewals, and adjustments
• Integrating cover into your wider business protection plan
Talk to Us About Key Person Insurance
If your business relies on one or two key individuals to keep things running, now is the time to plan for the unexpected. Key person insurance is a practical, affordable way to maintain stability when it’s needed most.
At Pineapple Insurance Services, we make it easy to understand your options and put effective protection in place.
Contact us today for expert advice, tailored solutions, and ongoing support you can rely on.
