Protect the person the business runs on.
Company-owned life and critical illness cover sized on profit contribution, structured so the payout lands where it's needed — and taxed the way you expect.
Key person insurance is UK business protection owned and paid for by the company, paying a lump sum if a named director or employee dies or is diagnosed with a critical illness. Cover is normally sized either at 5–10× the individual's total remuneration or as their share of gross profit multiplied by the 2–5 years needed to recover. Under HMRC's Anderson rules, premiums are usually an allowable trading expense where the policy is short-term, covers loss of profit and the insured has no substantial shareholding — in which case the proceeds are taxable as a trading receipt. Shareholder protection is a separate arrangement, written with a cross-option agreement to fund the purchase of an owner's shares. Commercial and development lenders often require key person cover assigned to the facility before drawdown.
The numbers, at a glance.
What lenders want to see.
Who typically qualifies
- Limited companies, LLPs and partnerships of any size
- Directors, founders and controlling shareholders
- Non-owner employees whose loss would hit profit — sales leads, technical specialists
- Businesses with commercial, development or invoice finance in place
- Insured aged 18–74 at application, cover typically to age 75
Documents to prepare
- Latest filed accounts and current management accounts
- Individual's total remuneration — salary, dividends, benefits
- Estimate of the individual's contribution to gross profit
- Shareholding percentages and any existing cross-option agreement
- Loan agreements where cover must be assigned to a lender
How Elena helps, specifically.
Sized on profit
Cover calculated from real contribution to gross profit, not a round number.
Cash when it matters
Lump sum to fund recruitment, lost contracts or a temporary shortfall.
Lender-ready
Policies assigned to commercial or development facilities before drawdown.
Tax structured
Anderson-rule tests checked so deduction and taxation are no surprise.
Paired with shareholder cover
Cross-option agreements arranged alongside so both risks are covered.
AI-modelled
Elena models the profit gap from your accounts and recommends a sum assured.
Top business protection structures
"Covers 3 years of the director's gross-profit contribution with illness included."
"Funds share purchase with an agreement both sides can enforce."
"Matches the amortisation profile of a 10-year commercial facility."
The detail lenders won't tell you.
How to identify a key person
A key person is anyone whose absence would materially reduce profit within 12 months. In practice that is usually a founder holding client relationships, a director who personally guarantees or secures finance, a technical lead who owns the product, or a salesperson generating a disproportionate share of revenue. The test is contribution to profit, not job title — a non-shareholding employee can be far more critical than a passive director.
The two sizing methods, worked
Multiple of remuneration: total salary, dividends and benefits × 5 to 10. Simple and quick, and usually what lenders accept. Gross-profit contribution: the individual's estimated share of gross profit × the number of years to replace them. A specialist generating 30% of £400,000 gross profit, needing three years to replace, gives £360,000. Where the two methods diverge, insurers will usually underwrite the higher figure if the calculation is documented.
Anderson rules and the tax outcome
HMRC's guidance treats premiums as an allowable trading expense where three conditions hold: the sole purpose is to make good a loss of trading profit, the term is short relative to the person's expected service, and the insured is an employee without a substantial shareholding (commonly read as under 5%). Meet those tests and the premium is deductible but the claim payment is a taxable trading receipt. Fail them — typically because the insured is a major shareholder — and the premium is not deductible while the proceeds are usually outside corporation tax. Both outcomes can be correct; what matters is choosing deliberately.
Shareholder protection and the cross-option agreement
Life cover alone does not move shares. Each owner takes out cover for the value of their stake, held in a business trust, and the owners sign a double-option (cross-option) agreement giving survivors the option to buy and the estate the option to sell. Because it is an option rather than a binding contract for sale, business relief for inheritance tax is usually preserved. Valuation clauses should be reviewed every two to three years or after any material change.
Key person vs shareholder vs loan protection
| Criterion | High-street lender | Specialist / AI-matched |
|---|---|---|
| What it protects | Trading profit | Ownership / loan repayment |
| Policy owner | The company | Company or individuals in trust |
| Beneficiary | The company | Surviving owners or lender |
| Premium deductible | Usually yes (Anderson tests met) | Usually no |
| Payout taxable | Usually yes, as trading receipt | Usually no |
| Extra documents | Board minute | Cross-option agreement / deed of assignment |
Real scenarios, real numbers.
Where these numbers come from.
- HMRC BIM45525 — Anderson rules on deductibility of key person insurance premiums.
- HMRC IHTM25000 series — Business relief treatment of cross-option agreements.
- FCA ICOBS — Suitability and disclosure requirements for commercial protection advice.
Rates, criteria and schemes cited are indicative of the UK market at time of publication and change frequently. Elena verifies live rates against 90+ lender panels before every application.
Questions, answered.
Elena, our AI mortgage expert, can answer it in seconds — or book you a free callback with a human broker.
What is key person insurance?
How much key person cover does a business need?
Are key person insurance premiums tax deductible?
How is key person cover different from shareholder protection?
Do lenders ask for key person cover?
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