Some businesses run on a handful of people. If losing one of them would put profit, loans or continuity under threat, key-person cover gives the company cash to steady itself. This guide covers what it is, how it is set up and how to work out whether your business needs it.
It isn't something owners go looking for. It comes up when someone sits down with you and looks at the whole picture: who the business really depends on, what is borrowed against them, and what would happen at home if the business stumbled.
At Eolas Money that conversation is Eolas Business, with Jim Stapleton. He starts with you and your family and works back up to the company. Key-person cover is one of the things the company may need in order to protect itself, and it is worked through with your accountant.
How Eolas Business worksWhat it is, why it matters, how the arrangement is structured and where it fits alongside your other cover - the essentials, before any product is ever mentioned.
Key-person cover is a life assurance (and, where it fits, serious-illness) policy the company takes out on the people the business genuinely can't afford to lose - a founder, a lead technician, a top salesperson, the person who holds the client relationships. The company owns the policy, pays the premiums and receives the payout, giving it cash to steady the ship if that person dies or becomes critically ill.
When one person carries a big share of your revenue, know-how or client trust, their sudden absence isn't just a sad event - it's a threat to the business itself. Sales stall, projects slip, lenders get nervous and the cost of replacing that person lands all at once. Key-person cover turns that shock into a manageable, funded event rather than an existential one.
The company is the policy owner and the life assured is the key employee or owner. The business pays the premium and, on a valid claim, receives a lump sum it can use as it sees fit - covering lost profit, repaying a director's loan, or funding the search for and settling-in of a replacement. It's a company asset, put in place to protect a company risk.
The payout is there to do real jobs: replace the gross profit that person generated while you regroup, clear or service borrowings that depended on them, and fund the very real cost of recruiting, onboarding and getting a successor up to speed. Good cover is sized against those specific liabilities, not a round number plucked from the air.
Key-person cover protects the company's trading position. Shareholder or partnership cover - sometimes arranged alongside it - is about ownership: making sure surviving owners can buy out a deceased shareholder's stake and the family gets fair value. Many owner-managed businesses need both, and we help you see where one ends and the other begins.
In some circumstances the premiums on a key-person policy can qualify for corporation tax relief, and the treatment of any payout depends on the specifics of the arrangement and Revenue's conditions. The detail matters and it's case-by-case, so we keep these statements high-level here and work it through properly alongside your accountant before anything is set up.
The questions business owners bring us most often. If yours isn't here, it's exactly the kind of thing to raise on a free call.
All frequently asked questionsKey-person cover is a life assurance policy - often with a serious-illness option - that a company takes out on an individual whose death or critical illness would seriously damage the business. It suits owner-managed and SME businesses where a small number of people carry a large share of the revenue, technical knowledge or client relationships. If you can name someone the business genuinely couldn't easily absorb losing, that's usually a sign it's worth a conversation.
The company owns the policy, pays the premiums and is the beneficiary. The key employee or owner is the life assured. On a valid claim the payout goes to the business, which can use it to replace lost profit, repay borrowings or fund recruitment. Because it protects a company risk, it sits with the company - not with the individual or their family, which is what shareholder or personal cover is for.
There's no standard figure - it should be sized against what you're actually protecting. We typically look at the gross profit that depends on the person, any loans or overdrafts linked to them, and the realistic cost of finding and settling in a replacement. Adding those up gives a cover amount you can justify, rather than an arbitrary round number. Getting the sizing right is a core part of the planning work.
In some circumstances the premiums can qualify for corporation tax relief, and the tax treatment of any payout depends on how the policy is set up and on Revenue's conditions. It genuinely is case-by-case, so we keep it high-level until we've looked at your specifics - and we work the detail through with your accountant so the arrangement is structured correctly from the start.
Key-person cover protects the company's trading position - the profit and continuity that depend on an individual. Shareholder protection is about ownership: making sure surviving shareholders can buy a deceased owner's shares and the family receives fair value for them. They solve different problems and many owner-managed businesses put both in place. We help you map which risks you're carrying and where each type of cover fits.
No. Eolas Money is independent and fee-based. We're not owned by, or tied to, any insurer, so our advice is about structuring cover that fits your business and your plan - not about placing a particular product. You'll always know what you're paying us and why, and the plan comes before any recommendation.
A note on tax. The tax treatment of key-person premiums and payouts depends on how the arrangement is structured and on Revenue's conditions, and it is assessed case-by-case. We keep the statements on this page high-level and work the detail through with your accountant before any cover is put in place. Eolas Money advises on financial products; company tax and legal questions remain with your accountant and solicitor.
Key-person cover is one piece of a plan for the business and the people who own it. Book a 45-minute call with Jim and start with the whole picture - what the cover should be comes out of that.
