Many small businesses are dependent on a single person or a very few people.  Key Person protection is designed to cover illness or death in these key decision makers, capital holders or knowledge workers by providing short term financial assistance during the period when these members are unable to work, for example in recruitment and training expenses, company reorganisation, temporary staffing, loss of goodwill and additional project costs.

Key person cover is an insurance arrangement effected by a company on the life or lives of essential employees.  The capital paid to the company is then used to protect the profits that would be lost on the death (or critical illness) of the insured key person and help towards replacement costs in terms of recruitment and any locum cover.

Generally, where the relationship is solely that of employee and employer and the insurance is short term in nature, then the premiums paid by the company can be relieved against corporation tax.  In this situation, the sum assured is likely to be taxed as a trading receipt; however, a local inspector of taxes will make this decision.