Key Man Insurance Calculator UK 2025/26

What is Key Man Insurance?

Key man insurance — increasingly called key person insurance (the gender-neutral term adopted widely since 2020) — is a life assurance and/or critical illness policy taken out by a business on one or more individuals whose sudden loss would have a materially damaging impact on the company's finances, operations, or survival.

Unlike personal life insurance, the business is the policyholder, pays the premiums, and receives any pay-out. The proceeds do not go to the individual's family — they go directly to the company to use as it sees fit: recruiting a replacement, covering lost revenue, repaying loans, or maintaining cash flow during a difficult transition.

There are two main triggers for a claim:

• Death: A lump sum is paid if the key person dies during the policy term.
• Critical illness: A lump sum is paid if the key person is diagnosed with a specified serious condition (cancer, heart attack, stroke, etc.) during the policy term. This can be added to a life-only policy or purchased as a standalone critical illness policy.

Most policies are structured as decreasing term (cover reduces over time, typically aligned to a business loan) or level term (cover stays fixed throughout the policy term). Level term tends to be more appropriate for revenue protection purposes.

How Much Key Man Cover Do You Need?

The right level of cover depends heavily on the key person's role in the business. There is no one-size-fits-all figure, but industry guidance typically involves combining several elements:

As a general rule of thumb, most SMEs choose cover of between £250,000 and £1,000,000 per key person, depending on the size and complexity of the business. The calculator above uses a composite formula: salary × 7 + revenue × 2 + loans + recruitment costs.

How is Key Man Insurance Taxed?

The tax treatment of key person insurance is one of the most commonly misunderstood aspects of business protection, and it hinges on the purpose of the policy:

• Premiums — generally not corporation tax deductible: By default, HMRC treats key man insurance premiums as capital expenditure (a business asset), not a trading expense. This means they are not deductible against corporation tax.
• HMRC exception — sole trading purpose: If the policy meets HMRC's three-part test (the relationship is employer/employee; the insurance is against loss of profits; the policy is short-term), premiums may be allowable as a trading deduction. See HMRC Business Income Manual BIM45500 for guidance.
• Pay-out — not taxable if premiums not deducted: If the company has not claimed a tax deduction for the premiums, any insurance pay-out is typically not treated as trading income and is therefore not subject to corporation tax.
• Pay-out — taxable income if premiums were deducted: Conversely, if the company claimed a corporation tax deduction on the premiums, the pay-out is treated as taxable trading income.

Key Man vs Shareholder Protection vs Relevant Life Insurance

Average Key Man Insurance Premiums (Indicative)

Premiums vary significantly based on age, health, occupation, cover amount, term length, and whether critical illness is included. The figures below are indicative life-only (death cover) estimates for non-smokers in good health:

Adding critical illness cover typically increases premiums by 50–150%. Smokers typically pay 2–3× the non-smoker rate. These are indicative figures only — get a formal quote from a regulated broker.

Frequently Asked Questions