Business life insurance

Business life insurance protects your business's finances if an owner, director or key employee dies or becomes critically ill. It's there to help the company keep going after that loss.

It isn't one product: Legal & General calls it a broad term covering many different forms of business protection.

What sets it apart from personal life insurance is who owns the policy and who gets the money. With key person cover, the business owns the policy and receives the payout.

With relevant life cover, your company pays the premiums, but the lump sum goes to the employee's family through a trust. With share protection, each owner's policy is written under a trust with the other owners as trustees, so they can buy the share.

What your business can take out depends on how it's set up. At Legal & General:

Other insurers sell business cover too, including Aviva, LV= and Royal London.

Yes, if your company employs you, including as a director. At Legal & General, an employer can take out a relevant life plan: term life cover (cover for a set period) that it arranges and pays for on an employee.

Legal & General says relevant life plans aren't available where there's no employer and employee relationship. Its examples are sole traders, equity partners in a partnership and equity members of an LLP (limited liability partnership).

Legal & General's Relevant Life Plan pays a lump sum to the employee's family if they die or are diagnosed with a terminal illness while employed during the term. Its main terms:

• it's a single life policy on the employee, and the employer pays the premiums during employment
• it's written in a discretionary trust from the outset, for the person covered and their family and financial dependants
• it ends by the time the employee is 75
• the maximum cover usually depends on the employee's age and overall pay, including salary, bonuses, benefits in kind and regular dividends

Legal & General says the plan is built to meet certain legal requirements, so that its premiums, benefits and options should be treated tax efficiently.

Under HMRC's guidance, a single-life relevant life policy must pay a lump sum if the person covered dies under a set age, no higher than 75. It must have no surrender value (no cash-in value). Only individuals and charities can benefit, and avoiding tax mustn't be a main purpose.

Legal & General's group life schemes don't accept businesses with fewer than ten employees. For them, it offers a relevant life plan as another way to give staff a death in service benefit.

• Relevant life insurance: who can have it, the limits and how it is taxed
• Relevant life insurance calculator: compare salary with your company paying, and see insurer cover limits
• Death in service benefit: what workplace life cover pays and what happens when you leave

Key person insurance covers your business against lost profits if a key person dies, falls ill or is injured. HMRC describes it as a policy an employer takes out in its own favour on an employee, director or other key person.

It's also called key man insurance, and Legal & General says the two names mean the same thing. For Legal & General, a key person could be anyone crucial to the day-to-day running of the company. Its examples are a director, an employee or anyone whose skill, knowledge and experience affects revenue.

Legal & General needs that person's agreement, and the business needs a financial relationship with them. The business owns the policy, pays the premiums and gets any payout. It must also be able to show it would lose profits without that person.

Legal & General's Key Person Protection pays out on death or terminal illness (life expectancy under 12 months). If you add critical illness cover at the start, for an extra cost, it also pays for a specified critical illness. Legal & General says the money could help with:

• lost profits
• recruiting or training a replacement
• lost personal or business contacts, lost goodwill and customers or suppliers losing confidence
• outstanding loans

Royal London suggests covering a key person's contribution to profits for at least a year, ideally. Before it underwrites the cover (decides whether to offer it and on what terms), it may ask why the person matters. It may also ask what they contribute to profits and what replacing them would cost.

At Royal London, equity partners in a partnership take out cover on their own lives for the value of their loss as a key person. The cover is held in their name under a business trust, and the money is available to the surviving partners.

LV= also sells Executive Income Protection. Income protection pays regular amounts instead of a lump sum, replacing part of someone's income while illness or an accident stops them working.

• Key person insurance: who counts as a key person, how much cover and how it is taxed
• Key person insurance calculator: compare the ways insurers size cover for someone the business relies on

Share protection lets the surviving owners buy a co-owner's share of the business from their estate. That gives the owner's dependants a willing buyer and cash instead of a share of the business.

Legal & General says that if a business owner dies with no share protection in place, their share may pass to their family. The surviving owners could then lose control of part of the business, or in some circumstances all of it.

Legal & General's arrangement uses a cross-option agreement (also called a double option). The surviving owners can require the estate to sell, and the estate can require them to buy, within a set period.

Each owner takes out a life policy for the amount needed to buy their share. It's written under a share protection trust, with the other owners as trustees. Royal London adds that the agreement also sets out how the share is valued.

Royal London says that with the cover under a business trust, the payout goes to the surviving shareholders, partners or members when a co-owner dies or becomes critically ill.

To set the amount, Legal & General suggests estimating how much capital the remaining owners would need to buy their colleague's shareholding. Royal London may ask for a valuation of the shares.

Legal & General lists other arrangements too, such as a company buyback, where the company itself buys the shares when a shareholder retires or dies. For how the trusts work, see life insurance in trust.

Business loan protection can help a business pay off an overdraft, loan or commercial mortgage if a key employee dies. Legal & General's version also pays if they're diagnosed with a terminal illness (life expectancy under 12 months) during the policy.

Legal & General says the cover should reflect what the business has borrowed. It can be level (the same throughout) or decreasing (falling over time).

At Royal London, a limited company receives the payout and spends it as the business needs, which could include repaying a loan. For loan protection, Royal London may ask for a copy of the loan offer.

A group life scheme gives an employee's loved ones financial support if the employee passes away in service. With Aviva's Group Life Insurance, you can give everyone the same level of benefit or set different levels for groups such as directors, managers and staff.

Minimum scheme sizes vary. MetLife Group Life is open to UK-based employers with at least 3 employees (or at least 250 for Flex schemes), subject to scheme underwriting. Legal & General's group life schemes don't accept businesses with fewer than ten employees.

A group scheme can be set up under a registered pension scheme or as an excepted group life policy. Aviva offers Master Trust arrangements for both. MetLife issues a separate policy for each, and a Single Life Relevant Life policy for a single employee.

HMRC says Finance Act 2003 took group life policies that only pay death benefits out of the chargeable event rules, if they meet certain conditions. A policy that insures people up to age 75 and pays death benefits only to their dependants gives rise to no tax charges, provided it meets the conditions in full.

HMRC notes there's no formal approval process for excepted group life policies, so insurers, policyholders and their advisers have to check a policy's status themselves.

Group risk benefits paid a record £2.69bn in 2025, according to GRiD, the industry body for group risk. That covers employer-sponsored life assurance, group income protection and critical illness. Group life was the largest part, with 12,730 claims and an average new claim of £143,436.

• Group life assurance £1,825.9 million
• Group income protection £670.7 million
• Group critical illness £190.8 million

Group risk claims paid in 2025, by type of cover

	Paid in 2025
Group life assurance	£1,825.9 million
Group income protection	£670.7 million
Group critical illness	£190.8 million

Figures from GRiD's 2025 claims data. Group income protection is the value paid out across 2025 on claims in payment, including claims paid for part of the year.

• Death in service benefit: how much it pays, who receives it and whether it is enough

It depends on the type of cover. HMRC says key person premiums are deductible only if the sole purpose is to meet a loss of trading income and a life policy is term insurance.

Aviva says group life premiums usually count as an allowable business expense. Legal & General says business loan protection premiums wouldn't get tax relief.

Key person insurance

HMRC allows key person premiums as a deduction only if the cover's sole purpose is to meet a loss of trading income, not a capital loss. A life policy must also be term insurance, paying only if the person dies within the term, with no other benefits.

If both conditions are met, HMRC says the premiums are deductible and any payout is income of the trade. If not, as a general rule the premiums can't be deducted and the payout isn't taxed as trading income. HMRC says it can't guarantee that, though.

HMRC says whether the purpose is purely a trade one is a question of fact, judged on what the directors or owners were trying to achieve. Its example of a possible non-trade purpose is cover only on directors who are major shareholders, not on other employees.

Relevant life cover

Under HMRC's guidance, the premiums on a relevant life policy don't attract a charge under the employer-financed retirement benefits scheme (EFRBS) rules. They may be taxable under other rules, though. A payout from a relevant life policy isn't chargeable under the EFRBS rules either.

HMRC says section 307 of the Income Tax (Earnings and Pensions) Act 2003 may exempt a benefit in kind charge, depending on the circumstances. That section says no income tax arises under the residual benefits charge when an employer provides for a retirement or death benefit for an employee.

Business loan protection

HMRC's key person rules allow a deduction only where the cover is for a loss of trading income, not a capital loss. Legal & General says loan protection premiums wouldn't get tax relief, because the policy protects the capital of the business.

Shareholder protection and Inheritance Tax

HMRC's Inheritance Tax manual says life policies may provide the money for surviving partners or shareholder directors to buy a late colleague's interest or shares. A binding 'buy and sell' agreement (a contract for sale) stops the shares qualifying for business relief, but HMRC says the requirements for one are rarely met.

An agreement where the share falls into the estate, with an option for the surviving owners to buy it, isn't a contract for sale, HMRC says. So it doesn't stop the interest qualifying for business relief.

Group life

Aviva says group life premiums usually count as an allowable business expense under current UK tax laws.

Insurers point business customers to advisers, and they may ask for financial evidence about the business before they offer cover.

1. Expect to go through an adviser Aviva says employers need to speak to an adviser to get a quote or apply for its group life cover. Legal & General says its team of financial advisers can advise on which business plan may be right for your business.
2. Have your financial evidence ready Royal London may ask why a key person matters, what they contribute to profits and what replacing them would cost. For shareholder protection it may want a valuation of the shares, and for loan protection a copy of the loan offer.
3. Be ready for health and lifestyle questions The health of the person covered still affects the cost. For shareholder protection, Legal & General says the price depends on their age, lifestyle, occupation and smoking status. Their health and health history, alcohol use and family medical history count too. See life insurance with pre-existing medical conditions.
4. If you're a sole trader, compare personal cover Royal London says personal protection may be more suitable if a sole trader is the key person. Sole traders can't take out a relevant life plan on themselves at Legal & General either. See life insurance for the self-employed.

The quote form on this page is for personal life insurance in your own name, not for policies a business owns. It goes to Reassured, the broker we work with.

Reassured says it compares life insurance quotes from a panel of leading insurers. See life insurance brokers for how brokers work.

• Relevant life insurance: life cover a company pays for on a director or employee
• Key person insurance: protecting a business against losing someone vital
• Death in service benefit: workplace life cover explained
• Income protection: a monthly income while you can't work
• Critical illness cover: a lump sum if you're diagnosed with a serious illness
• Life insurance in trust: how a trust decides who receives the payout