Key Person Insurance Australia (2025)

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ProductReview
Written by Russell Cain
| Updated: 18 December 2025

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Table Of Contents
  1. What is Key Person Insurance?
  2. Types of policies
  3. Do You Need a Key Person Agreement?
  4. Key Person Insurance vs Individual Life Insurance

What is Key Person Insurance?

Key Person Insurance (also known as Keyman Insurance or Key Employee Insurance) is a life, TPD or trauma policy purchased by the business, with the benefit paid directly to the business if a crucial employee can no longer work due to:

Who Is Considered a “Key Person”?

A key person is any employee whose loss would have a material financial impact on the business. Typically, if losing them would hurt revenue, reputation, operations, or debt obligations, they are considered a key person.

Types of businesses that may benefit from a Keyman policy

Start Ups: Early-stage businesses are often heavily reliant on founders or a small leadership team. The loss of a key individual can disrupt funding, strategy and day-to-day operations.

Capital intensive businesses: Businesses with high fixed costs, significant equipment investment or large debt obligations may face serious financial pressure if a key person can no longer work.

High value shareholdings: Where the business is worth a substantial amount, the loss of a shareholder or key executive can create ownership and succession challenges that require funding to resolve.s……

High dependency on one person for revenue or/ technical expertise: This includes businesses reliant on a top salesperson, specialist technician, engineer or professional whose skills or relationships are difficult to replace. Other businesses heavily reliant on key individuals: Any business where the absence of one person would materially affect revenue, operations, credit standing or continuity may benefit from a Key Person policy.

Benefits of key person insurance

Key Person Insurance can help the business manage several financial pressures that may occur if a key individual is unable to continue working. It can help cover the cost of replacing key staff by helping with recruitment, salary overlap, and training expenses. If the person is responsible for significant revenue or major client relationships, the payout can help offset any immediate income loss while the business recovers.

Where the key individual has guaranteed business loans, insurance can provide funds to meet those financial obligations, helping prevent lenders from calling in loans unexpectedly. It can also be used to purchase ownership shares of a partner or shareholder who can no longer participate in the business, helping the remaining owners maintain control without borrowing funds or selling assets.

Typical types of key person insurance can include:

  • Life insurance
  • Trauma insurance
  • Total and Permanent Disablement (TPD) insurance.

Types of policies

Key Person Insurance can be structured in different ways depending on what you need the payout to achieve for the business. The type of policy you choose should be aligned with your requirements, whether that is maintaining revenue, protecting against debt or securing the future ownership of the company.

Revenue Protection

Revenue Protection helps secure your business’s income and financial stability if a key person who generates revenue or maintains essential relationships becomes unable to work. The benefit can provide funds to offset reduced turnover, protect profits and allow time to recruit or train a replacement, meaning the business can continue operating while adjusting to the loss. 

It can help by:

Capital Protection

Capital Protection helps safeguard the financial position of the business if a key person passes away or becomes unable to work, particularly where that individual is a guarantor on business loans or personally funds company activities. The payout can be used to repay debt, protect business assets and prevent lenders from recalling loans, which can be critical to maintaining business stability and credit standing during unexpected disruption.

It can help by:

Buy/Sell Insurance

Buy/Sell Insurance is designed to make sure the remaining business owners have the funds to buy the shares or ownership interest of a partner who can no longer continue working due to death, disability or a serious illness. Rather than protecting the trading business itself, Buy/Sell Insurance protects the owners, helping avoid disputes, forced sales or unwanted involvement from external parties. In most cases, the policy is owned by the business owners rather than the trading entity, and the payout is used to transfer ownership smoothly and maintain business continuity.

It typically helps by:

How Much Does Key Person Insurance Cost

The cost of Key Person Insurance varies depending on factors such as the insured person’s age and health, the type of cover selected, the amount of insurance required, and the individual’s occupation and duties. Premiums are generally lower for life cover and higher for Total and Permanent Disability or trauma cover due to the increased likelihood of a claim. Because every business relies on key employees in different ways, the best way to understand cost is to compare quotes from multiple insurers and consider the purpose of the cover when deciding on how much cover you should have in place.

How Much Key Person Insurance Do You Need

There is no single amount that suits every business. The appropriate level of cover depends largely on the purpose of the policy.

Practical consideration should also be given to how long it would take to replace the person and the financial impact during that period.

Do You Need a Key Person Agreement?

A key person agreement is not mandatory, but it is commonly recommended, particularly where Buy/Sell Insurance is involved. These agreements help clarify how insurance proceeds will be used and how ownership or control will be transferred in the event of an unplanned exit.

Key person agreements are most important for buy/sell arrangements, while they are less critical for revenue or capital protection policies that are owned by the business.

Key Person Insurance vs Individual Life Insurance

FeatureKey Person InsuranceIndividual Life Insurance
PurposeProtects the business financially if a key employee is unable to workProtects the individual’s family or dependants
Who is insuredThe key person (employee, owner, director etc)The person purchasing the policy
Who owns the policyDepends on Purpose – Business | Shareholder | Cross OwnedUsually the individual
Who pays the premiumsDepends on Purpose – Business | Shareholder | Other ShareholdersIndividual
Who receives the benefitDepends on Purpose – Business | Shareholder | Other ShareholderThe individual’s beneficiaries (family etc)
Typical use of payout– Replace lost revenue, 
– repay business loans, 
– fund buyout of shares, 
– recruit a replacement		Cover personal debts, provide income for family, funeral costs
Covers business riskYesNo
Covers personal financial riskLimited to business arrangementsYes

Frequently Asked Questions and Answers

  • What are the disadvantages of key person insurance?

    One downside of key person insurance is that the premiums are an added business expense, especially if multiple people need to be insured. In some cases, premiums may not be tax deductible depending on the purpose of the policy. It also only covers specific medical events, which means personal situations like resignation or retirement are not included. Despite these limitations, the financial protection it provides often outweighs the potential disadvantages.

  • What is another name for key person insurance?

    Key person insurance is also commonly referred to as key man insurance, key employee insurance or business life insurance. All of these terms describe the same type of cover, which protects the business if an important individual can no longer work due to death or serious illness. The terminology varies, but the purpose remains the same: to help the company survive the financial impact of losing a crucial contributor.

  • Is keyman insurance a good idea?

    Keyman insurance is a smart idea for businesses that rely heavily on certain individuals for revenue, technical skills or operational leadership. Without it, the sudden loss of a key person could lead to financial strain, disruption or even the closure of the business. By having a policy in place, owners gain confidence that the business can continue operating while they recruit or restructure. It is generally considered an important part of a well-rounded business risk strategy.

  • Can the key person be the beneficiary?

    In most cases, the key person is not the beneficiary because the purpose of the cover is to protect the business, not the individual. The benefit is generally paid to the company so it can manage financial impacts such as loss of revenue, debt or replacement costs. The key person is listed as the insured person, but the business normally receives the payout. This ensures the policy achieves its intended purpose.

  • Who owns a key person policy?

    A key person policy is usually owned by the business rather than by the insured individual. The business pays the premiums and receives the benefit if a claim occurs. This structure allows the company to use the funds to manage operational and financial challenges if a key employee is no longer able to work. Ownership may vary in specific buy-sell or shareholder arrangements, but in most situations, the business is the policy owner.

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