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        Updated: April 22, 2024

        Key Man Insurance or Relevant Life Insurance: Which Does Your Business Need?

        Key Person Insurance or Relevant Life Insurance - which option is the most suitable for your business? Read this guide to find out

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in relevant life cover. Ask us a question and we'll get the best expert to help.

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        Key man insurance and relevant life insurance are both life insurance products designed to protect businesses and their employees. There are crucial differences between the two insurance policies which you need to understand to ensure you get the right protection in place.

        Read on to understand the differences between each life policy and find out which insurance is most suited to you and the needs of your business.

        What’s the difference between relevant life and key man insurance?

        Key man insurance protects the business; relevant life insurance protects your staff and their family.

        Key man and relevant life insurance are both life insurance policies. The way they pay out is what separates them; key man insurance is designed to protect the needs of a business in the event of a key employee dying or becoming critically ill, relevant life cover is for the insured employee and their family, more commonly known as a death in service benefit.

        Both types of life insurance policy are owned by the business and the premiums are paid by the firm. The one major difference is who benefits in the event of a claim being made.

        Key man insurance vs. relevant life cover

        See in a glance the differences between the two different life insurance policies.

        The table below pitches the two options head-to-head…

        Key Man Insurance Relevant Life Cover
        Who owns the policy and pays the premiums?
        Owned by the business and paid for by the business Owned by the business and paid for by the business
        Who does it protect?
        Protects the company by providing a cash injection to help the business survive the loss of a key employee, due to death or critical illness (if included) Protects the family of an employee by providing a tax-free lump sum in the event that the employee dies
        Why might I need this cover?
        Key man insurance is designed to help a company survive the loss of a key employee by providing cash to help sustain the needs of a business during a difficult transitional phase. Lenders and investors often require adequate key man cover to be in place if they are lending money, or considering investing in a business, to protect their risk Relevant life insurance is usually taken out by directors of a business for themselves to protect their families. It is also used by smaller companies wanting offer life insurance to their employees when they don’t have enough employees for a fully-fledged Death in Service scheme
        Additional Protection
        Possible to add critical illness cover for more comprehensive protection Additional protection against critical illness has to be paid for separately due to different tax treatment
        How is it taxed?
        Used as a tool to help business continuity, benefit is paid back into the company and is generally treated as a taxable trading receipt. Depending on how it is set up and the reasons for holding the insurance, premiums may be tax deductible as an allowable business expense The policy must be placed in trust and should pay out a tax-free cash lump sum to your nominated beneficiary/beneficiaries. Premiums paid qualify for corporation tax relief, income tax relief and National Insurance relief so can be a great way to protect your family, instead of a personal life insurance policy
        Level of Cover
        Will depend on business metrics and how senior or critical an employee is to the profitable running of the business Usually represented as multiples of your annual salary, plus any dividends

        The tax treatment described was accurate at the time of writing (November 2020) and is liable to change by the inland revenue at any point.

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        Should I choose Key man insurance or relevant life cover?

        Key man insurance cover is suitable for businesses who have one or more key members of staff who perform roles crucial to the success of a company. Having a cash lump sum on hand to help fund a transition when you lose a vital member of staff with no warning could, in the worst case scenario, help prevent bankruptcy.

        Key man insurance may also be necessary when taking out a business loan. Some banks and lenders may request that adequate key man insurance is in place before they’ll agree to lend money to a small business, to help protect their risk.

        If key man insurance is taken out to protect a business loan, the premiums you pay are unlikely to be tax-deductible since any pay out is intended for the lender’s direct benefit, rather than to protect business continuity.

        • Businesses wishing to protect themselves in the event that they suddenly lose a key member of staff, when a cash lump sum could make help business continue to trade without too much disruption, protect against short term income loss and avoid otherwise potentially devastating consequences
        • Companies borrowing business loans; some banks and lenders require adequate cover to be in place to protect their risk. Key man insurance for this purpose is often cheaper since the loan amount will decrease as you pay off the capital, therefore the amount of money you need as insurance will decrease in line, as you pay down the bank loan

        Relevant life cover, meanwhile, is often chosen by small businesses as a way to offer additional benefits to their staff when there aren’t enough employees to set up a full Death in Service scheme.

        Relevant life insurance is popular with company directors since premiums on relevant life cover qualify for corporation tax relief, income tax relief and National Insurance relief. Which would not be applicable if you had a personal life insurance policy.

        • Company directors who can benefit from tax advantages they wouldn’t get through a personal life insurance policy
        • Small businesses who don’t have adequate numbers of employees to arrange a group life insurance policy

        Speak to an expert

        We work with insurance experts who can help you understand which life insurance product would best serve the needs of your business and employees.

        All the experts we work with are independent financial advisors authorised and regulated by the Financial Conduct Authority and fully qualified to provide advice.

        Call 0808 189 0463 or make an enquiry for a free, no-obligation chat and we’ll match you with an expert today.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in relevant life cover. Ask us a question and we'll get the best expert to help.

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        Richard Angliss

        Richard Angliss

        Finance Expert

        About the author

        Richard Angliss has made a career in financial services which stretches over 40 years.

        His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

        For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

        At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

        With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

        He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.