Key person protection (often called keyman insurance or key person income protection) is a business insurance policy that pays out if a vital individual — a founder, top salesperson or specialist — dies or becomes critically ill. The business owns the policy and receives the payout to cover the financial hit.
Why it matters
For many SMEs, one person drives a large share of revenue, relationships or expertise. Losing them suddenly can threaten loan repayments, profits and even survival. Key person cover provides a cash cushion to recruit, retrain, and stabilise.
What the payout covers
- Lost profits while you recover.
- Recruiting and training a replacement.
- Repaying business loans or director’s loans tied to that person.
- Reassuring lenders, investors and clients.
How cover is calculated
A common approach links the sum assured to the key person’s contribution — for example a multiple of their salary, or their share of gross profit, or the value of loans they personally guarantee. The right figure reflects the real financial gap their loss would create.
Setting it up
The business takes out and pays for the policy on the key individual (with their consent). Premiums depend on age, health, cover level and term. It pairs naturally with reviewing any finance commitments the person underpins.
Frequently asked questions
Who counts as a key person?
Anyone whose loss would materially harm the business — founders, directors, top sales staff or technical specialists.
Is key person protection tax deductible?
Premiums may be allowable where the policy meets HMRC’s "Anderson principles"; always confirm with your accountant.
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Get your free quoteThis article is general information, not financial advice. Eligibility, rates and terms vary by lender and your circumstances. The Loans Hub is a finance broker, not a lender.
