What’s the Difference between Keyman Insurance & Relevant Life Cover?

Key Man Insurance vs Relevant Life Cover

No matter the size of your business, it’s important that you have the right level of cover should the worst happen. For many companies, this means insurance policies that protect the business should specific personnel (such as company founders, top executives or leading salespeople) pass away.

Both Keyman Insurance and Relevant Life Cover are types of life insurance that the business pays for, but the recipients of the benefit payments vary. They both cover a key person should they die and, in some cases, if they become critically ill.

In the case of Key Person Insurance, the business is the recipient of the insurance money should the key person die or become critically ill. The company owns and pays for Key Person Life Insurance. Conversely, the Relevant Life Insurance benefits are paid directly to the key person’s family members should the key person die. As with Key Person Life Insurance, the company pays the premiums for Relevant Life Insurance.

There are many factors to consider for Key Man vs Relevant Life insurance. It’s important to assess what kind of cover your business needs and what benefits you want to offer employees.

What is Key Man Insurance?

Key Person Life Insurance is designed to protect your business should a key person (such as the director or top salesperson) pass away. Some policies also cover the key person if they become critically ill. This could be as a result of a stroke, cancer or another serious illness or accident.

The person insured should be an integral part of the company, such as a director or top executive. They may have a specialist set of skills that no other employee has, or they may be an important part of the overall running or decision-making within the company.  If the key person dies or become critically ill, the insurance money helps protect the company against the risk of profit losses or high expenses for the hiring and training of a replacement.

Key Person Life Insurance typically includes:

• Life Insurance Cover – Pays a lump sum to the business if the key person dies during the policy term.
• Critical Illness Cover (Optional) – Provides a payout if the key person is diagnosed with a serious illness and can no longer work.
• Loss of Profits Protection – Covers lost revenue caused by the absence of the key person.
• Recruitment & Replacement Costs – Helps fund the hiring and training of a replacement.
• Debt & Loan Protection – Ensures business loans or financial obligations linked to the key person can be repaid.

You can also use our Key Person Insurance calculator to help you estimate how much insurance you may need for key members of staff within your company. The premiums will depend on various factors, including the age and health of the insured key person. For example, older key members of staff will likely have higher premiums than younger members of staff, as will staff members who smoke. 

What is Relevant Life Insurance?

Like Key Person Life Insurance, Relevant Life Insurance offers financial protection should a key person pass away or become unable to work due to a critical illness. However, unlike a Key Person Insurance policy, Relevant Life Insurance benefits the key person’s loved ones.

Relevant Life Insurance typically includes:

• Life Insurance Cover – Pays a tax-free lump sum to the employee’s beneficiaries if the key person passes away during the policy term.
• Terminal Illness Cover – Provides an early payout if the employee is diagnosed with a terminal illness (usually with less than 12 months to live).
• No Impact on Pension Allowance – Unlike some other life insurance policies, it doesn’t count towards the employee’s lifetime pension allowance.
• Portable Policy – Can sometimes be transferred if the employee changes jobs, depending on the provider’s terms.

While this type of insurance doesn’t directly benefit the company, it can indirectly benefit the company. This type of employee benefit can help attract and retain top talent, while also acting as a tax-deductible business expense.

Which Protection Should I Choose?

When considering Key Man Insurance vs Relevant Life Insurance, your choice will depend on what kind of cover you’re looking for. The company owns both policies and pays the premiums. However, the recipient of the insurance money varies depending on the insurance.

The funds from a Key Person Insurance policy are designed to help the company cover the loss of revenue, finding a replacement and any financial obligations connected to the key person. This type of insurance is a good idea if your company has one or more key staff members whose expertise and skillset is a crucial part of the business. It can help cover the cost of recruiting and training new members of staff to the same high standard as the insured key person.

In some cases, you may find banks or lenders request Key Person Life insurance be in place before they loan the company money. They may stipulate the company must have a Key Person Insurance policy before they loan funds to the company in case the key person dies, and the loan repayments are affected.

Relevant Life Insurance is a good option if your company doesn’t have a group life scheme or a full Death in Service scheme. It’s popular for small businesses as a way to add additional employee benefits.

Unlike a Key Person Insurance policy, Relevant Life insurance doesn’t directly benefit the company. The insurance money can financially help the key person’s beneficiaries cover the loss of income from the key person. This benefit can be used to attract potential employees or to retain top talent.

Relevant Life Insurance can be counted as a business expense, which means your company can claim tax relief on the premiums. The insurance policy also won’t affect the employee’s Income Tax and there are no National Insurance contributions to be made. Key Person Life Insurance premiums can be offset against cooperation tax relief and may be tax deductible.

Should I choose Key Person Insurance or Relevant Life cover?

When it comes to Key Man Insurance vs Relevant Life Insurance, the right choice depends on who needs protection and what you want the insurance to cover. A Key Person Insurance policy helps protect the company against lost profits, recruitment costs, or outstanding debts if a key person were no longer there. This type of insurance can help the business continue operating smoothly should a key person in your company pass away or become too ill to continue working. Premiums for Key Person Life Insurance may also be tax deductible.

Relevant Life Insurance supports the employee’s family, rather than the company, in the event of the employee’s death (or critical illness). The insurance money is tax-free and doesn’t incur Income Tax or affect National Insurance contributions. Relevant Life Insurance is a good option if your business is too small to offer a group life insurance scheme, but you still want to provide a benefit. This type of insurance can be used to protect directors as they could benefit from the tax advantages that they wouldn’t get from a personal life insurance policy.

Get Business Protection Advice with Us

We understand how devastating it can be if you lose a key member of staff. Your business could lose revenue or face large expenses for the hiring and training of new staff. The key member of staff may also have been responsible for business loans or other expenses that the company must now pay for. That’s why we’re on hand to help you find the best Key Person Life Insurance policy. The right insurance can help your business cope with the financial struggles due to the loss of a key person and help the company continue running smoothly.

We can also help you find the best policies for Relevant Life Insurance to insure key members of staff. This type of insurance will benefit the key person’s loved ones should the key person pass away or become unable to work due to a critical illness. You can insure anyone from directors to key members of staff who have a unique skillset.

You can further protect your company through Business Loan Protection and Shareholder Protection Insurance. The first insurance policy pays off outstanding corporate debts should any key person within the business pass away unexpectedly. The second policy protects the company should a shareholder pass away unexpectedly.

Contact us today to get a quote for Key Person Insurance, Relevant Life Insurance or another type of business insurance. You can call us on 02071128844 or email us at info@mykeymaninsurance.com to get a fast and efficient response.

We’re here to guide you through the process and ensure you find the best insurance policies to protect your key people and company in the event of an unexpected death or critical illness diagnosis.