Key Person vs Executive Income Protection

Decision Guide

Key Person vs Executive Income Protection

When a director or senior employee can no longer work due to illness or injury, both can respond. The difference that decides which is right: are you protecting the business from the financial shock of losing that person, or protecting the director’s income while they recover?

By Natalie Brown, Senior Business Protection SpecialistUpdated June 2026 · 6 min read

Our verdict

For protecting a director’s personal income, Executive Income Protection is usually the right starting point.

Key Person Insurance is primarily a business continuity tool; it helps the company survive the loss of a critical individual, covering costs such as recruiting a replacement or servicing a loan. Executive Income Protection does something different: some providers allow up to 80% replacement of a director’s remuneration package for the duration of their incapacity, depending on insurer limits and your circumstances. Where a director is also the business’s single most important revenue driver, both policies may be suitable. An IGotCover adviser can help you decide which risk to address first.

The short answer

Key Person

A life or critical illness policy owned and paid for by the business, paying a lump sum directly to the company if a key individual dies or is diagnosed with a specified critical illness. It is designed to protect the business’s finances, not the individual’s personal income.

Executive IP

A long-term income protection policy arranged by the company for a director or key employee, paying a monthly benefit if that person is unable to work due to illness or injury. Premiums are typically paid by the business, and the benefit is usually paid to the company, which then pays the director through payroll.

The core difference

Key Person Insurance pays a lump sum to the business to continue operating, while Executive Income Protection pays a regular monthly benefit, typically to the company, to replace the director’s salary for as long as they remain unable to work.

Which is right for you?

Choose Key Person Insurance if…

One individual generates a disproportionate share of company revenue or client relationships
The business has a bank loan or personal guarantee that would be difficult to service if a key person were lost
You need to demonstrate financial resilience to investors, lenders, or corporate partners
A specialist’s skills would cost significantly more than their salary to replace on the open market
The business has little cash reserve to absorb a sudden loss of an income-generating employee
You want cover that also responds to death, not only incapacity

Choose Executive Income Protection if…

A director or senior employee is concerned about losing their personal income during a long-term illness
The business can absorb short-term disruption but could not sustain paying a salary indefinitely during absence
The director takes a mix of salary and dividends that personal income protection policies struggle to cover adequately
You want the company to fund the premiums in a potentially more tax-efficient way than a personal policy
You want cover that pays monthly for years, not just a one-off sum at the point of diagnosis

Side-by-side comparison

Ten points, each opens for the detail

Key Person

Executive IP

Key Person:The businessPays from company funds.

Executive IP:The businessThe business typically pays, making it a company expense.

Key Person:Often not deductiblePremiums generally not tax-deductible; payout may be taxable as a trading receipt. Seek specialist advice.

Executive IP:Usually a business expensePremiums usually treated as a business expense and may be allowable for corporation tax. The benefit paid via payroll is subject to income tax and NI. Seek specialist advice.Better here

Key Person:Death or critical illnessDeath or diagnosis of a specified critical illness (depending on policy).

Executive IP:Inability to workInability to work due to illness or injury, subject to the policy’s definition of incapacity.

Key Person:Lump sumA single lump sum paid to the company.

Executive IP:Monthly paymentsMonthly payments, usually to the company, for the duration of the claim up to the chosen benefit period.

Key Person:The business directlyIt uses the money as it chooses.

Executive IP:The director, then the companyThe director benefits personally via continued salary; the company benefits from reduced financial strain.

Key Person:5 to 10 timesOften a multiple of the individual’s contribution to profit or salary, typically 5 to 10 times; up to insurer limits.

Executive IP:Up to 80% of packageUsually up to around 80% of total remuneration including salary, dividends, and P11D benefits, depending on insurer and circumstances.

Key Person:One-off paymentNo ongoing benefit.

Executive IP:Pays until recoveryContinues to pay monthly until the individual returns to work, reaches the end of the selected term, or dies.Better here

Key Person:NoThe lump sum must cover all future costs at once.

Executive IP:YesDesigned specifically for extended absence, often to age 60, 65, or state pension age.Better here

Key Person:Relatively straightforwardStraightforward to arrange.Better here

Executive IP:More detailedMore detailed underwriting; remuneration package must be disclosed and agreed with the insurer.

Key Person:Revenue-critical firmsBusinesses needing to replace lost revenue or cover costs if a critical individual is lost.

Executive IP:Directors and senior staffThose who want their personal income protected through the business, with premiums paid more efficiently by the company.

Real-world scenarios

Illustrative examples showing how the decision tends to play out. Names and figures are for illustration only.

Scenario 1

Jess, one of three directors at a professional services firm

Jess brings in around £350,000 of the firm’s £600,000 annual fee income through a network built over 20 years. The business also has a £180,000 commercial mortgage.

Read the full scenario

If this director were diagnosed with cancer and could no longer work, the firm could face an immediate and severe revenue shortfall while still servicing its debt.

A Key Person policy could give the business time to retain clients and recruit a replacement without becoming insolvent.

Scenario 2

Rachel, director drawing salary plus dividends

Rachel pays herself a salary of £12,570 and draws dividends of £60,000 per year. She suffers a serious back injury and is unable to work for 18 months.

Read the full scenario

A personal income protection policy would typically only cover her salary, leaving the dividend income unprotected.

An Executive Income Protection policy, arranged through the company, can be structured to cover up to 80% of her total package, depending on insurer limits and her circumstances. Premiums paid by the company may also be more efficient than funding a personal policy from post-tax earnings.

Scenario 3

Simon, sole director of a growing technology consultancy

Simon generates all client revenue personally and draws a combined package of around £90,000 per year. He has a £200,000 personal guarantee on the company’s overdraft.

Read the full scenario

If he suffered a long-term illness, he would face two separate problems: his personal income would stop, and the business could struggle to service its debt without his client billings.

Executive Income Protection addresses the first problem; Key Person Insurance addresses the second. A financial adviser may suggest reviewing both, weighing the cost of premiums against the financial exposure each policy covers.

The rule of thumb

If the business faces the greater riskKey Person Insurance

If the director’s income is the concernExecutive Income Protection

Frequently asked questions

Can the company pay for Executive Income Protection on my behalf?

Yes, and this is one of the main advantages of Executive Income Protection over a personal policy. The company pays the premiums, which may be treated as an allowable business expense for corporation tax purposes. The benefit, when paid, is typically routed through the company’s payroll, making it subject to income tax and National Insurance in the normal way. The overall position can be more efficient than funding a personal policy from post-tax income, though this depends on your circumstances. Take specific tax advice before relying on any tax treatment.

Does Executive Income Protection cover dividends as well as salary?

Many policies can be structured to cover a director’s total remuneration package, including salary, dividends, and benefits in kind, up to the insurer’s limit, which can be up to 80% of total earnings. This is a significant advantage over standard personal income protection policies, which usually only cover employment income. You will need to disclose your full remuneration structure at the time of application, and the insurer will set the maximum benefit accordingly.

What counts as being “unable to work” for a claim?

This depends on the policy’s definition of incapacity, which varies between insurers. The most favourable definition is “own occupation,” meaning the individual cannot perform their specific role. Broader definitions, such as “suited occupation” or “any occupation,” are harder to claim against. For senior directors, own-occupation cover is usually recommended. Read the policy wording carefully and ask your adviser to confirm which definition applies before taking out cover.

Does Key Person Insurance pay out for long-term illness, or only death?

It depends on how the policy is structured. A life-only Key Person policy pays on death. Many policies also include critical illness cover, which pays out on diagnosis of a specified condition such as cancer, heart attack, or stroke, subject to survival periods. Some insurers offer income protection variants of Key Person cover that pay monthly rather than a lump sum. Each option has different underwriting, premium, and tax implications. Your adviser can explain which structure suits your situation.

How long does Executive Income Protection pay out for?

The benefit period is chosen at outset and typically runs until the individual returns to work, reaches a selected age such as 60, 65, or state pension age, or the policy term ends. This makes it well suited to genuinely long-term absences that a lump-sum policy cannot adequately cover. A deferred period, commonly 4, 13, or 26 weeks, applies before payments begin. Choosing a longer deferred period usually reduces the premium.

We already have group income protection for employees. Do directors need something separate?

Often yes. Group income protection schemes typically cover a percentage of basic salary and are subject to free-cover limits that may be too low for a director’s full remuneration package. Directors who draw most of their income as dividends may find they are poorly covered or excluded altogether. Executive Income Protection is designed specifically for this scenario, allowing the cover to reflect the director’s actual total package rather than salary alone. Check the group scheme terms carefully before assuming adequate cover exists.

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Rely on death in service, or take Relevant Life?

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This guide is general information about how these policies work and is not personal advice or a recommendation. Tax treatment depends on your individual circumstances and the rules may change. The figures in the scenarios are illustrative only. Consider speaking to a qualified adviser before deciding what is right for you.

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