If you’re a business owner or director, you’ve likely heard of key person insurance – but how much does it cost in the UK? The short answer is: it depends. The cost of key person insurance varies based on who is being insured, the amount of cover needed, and the duration required.
In this guide, we’ll break down how premiums are calculated, give you real-world examples, and show you how to keep costs under control – without underinsuring your business.
What is the average cost of key person insurance?
For UK businesses, key person insurance costs vary depending on the individual insured and the policy structure. There are tools out there that can help you get an estimate of what the costs could be. This calculatorcan help you get an idea of the costs.
Key factors affecting cost:
- Age of the person insured
- Health and lifestyle
- Amount of cover (£) required
- Policy length (years)
- Whether critical illness cover is included
Let’s take a closer look at each of these.
What affects the cost of key person insurance?
1. The age and health of the key person
- The younger and healthier you are = the lower the premiums
- Smokers or individuals with health conditions = higher costs
- Underwriters may ask for GP records or medicals for high sums assured
2. The level of cover you choose
The more you want the policy to pay out, the higher the cost will be.
Common cover amounts:
- £250,000 – for small teams or junior directors
- £500,000 to £1 million+ – for senior leaders, founders, or rainmakers
3. Policy term (length)
Most policies run for 5 to 25 years, or until retirement. The longer the term, the more expensive it gets.
4. Critical illness cover
Adding critical illness cover can increase premiums by 40-100%, but it also protects if the key person survives but is unable to work.
How much cover should you get?
There’s no fixed rule, but many insurers suggest calculating cover based on:
Option 1: multiple of profit or revenue
- 2-5x net profit contributed by the key person
- 1-2x gross revenue linked to their role
Option 2: cost of replacement & recovery
- Recruitment + training costs
- Loss of clients or deals
- Business slowdown costs
A specialist adviser can help you justify the sum assured so the insurer approves it.
How to reduce the cost of key person insurance
- Use a level term policy instead of increasing cover
- Exclude critical illness if the budget is tight
- Apply early – costs rise with age
- Pay annually instead of monthly (if cash flow allows)
- Work with a broker to compare insurers and get deals
FAQs about key person insurance costs
Is key person insurance tax-deductible in the UK?
Sometimes. If the policy is purely to protect trading profit (not shareholders), HMRC may allow a corporation tax deduction. Check with your accountant.
Can I ensure that I am a director?
Yes – especially with small companies. But if you’re the only director/shareholder, HMRC may not treat it as a deductible expense.
How long should my key person policy be in effect?
Most businesses choose a term of 5-10 years or until the expected retirement of the individual.
Can I cancel the policy if my key person leaves?
Yes. Most policies are flexible – if the person leaves or is replaced, you can cancel or adjust the cover.
What’s peace of mind worth?
The cost of key person insurance is a small price to pay for protecting your company’s future. Whether you’re covering a founder, top salesperson, or operations lead, the right policy can mean the difference between surviving a crisis or going under.
When you take out cover with IGotCover, we can compare quotes, get expert advice, and make sure you’re protected. Your best people are your biggest asset – and your most significant risk.
