Key person insurance for startups, founder first

Key person insurance for startups helps a young company stay steady, with money for lost profit, recruiting a replacement or an outstanding loan (Legal & General ↗).

It pays the company if a founder or another key person passes away or, with critical illness cover, is seriously ill (Legal & General ↗).

Legal & General says a start-up may be dependent on one or two individuals who are fundamental to its success (Legal & General ↗).

This guide covers what insurers publish about start-ups and investor-backed businesses.

Every claim here is our summary of a named external source, linked beside it. Sources change: check the wording at the link before you rely on it.

Size founder cover ↓Check your key person risk →

01 · Why

Why startups need key person insurance

Early on, a few people hold the product, the customers and the investors' confidence.

A payout can help keep all three, and Legal & General lists what it could pay for (Legal & General ↗).

The company owns the policy, pays for it and is paid (Royal London ↗), so the money stays in the business.

What a payout could help with

Loss of profits
Having to recruit or train a replacement
Losing personal or business contacts the key person kept up
Loss of goodwill, which can affect raising capital or attracting investors
Customers and suppliers losing confidence in the business
Outstanding loans

Summarised from Legal & General's list of what a payout could help with (Legal & General ↗).

02 · Investors

When investors require key person cover

We have found no published source on how often investors ask for key person cover, so we make no claim about it.

If your term sheet or shareholders' agreement includes an insurance condition, it sets who must be covered and for how much; read it, or ask your solicitor.

What insurers do publish: where a business raises capital through private equity or venture capital, Royal London says the capital investment would be calculated and covered as appropriate (Royal London ↗).

Roles typically covered, in Legal & General's words

Owner/founderCheck this role
CEOCheck this role
Operations manager
IT manager
Web developerCheck this role
Sales lead
Employees with lots of contacts
Exceptional talentsCheck this role

Legal & General's list of roles that are typically covered by key person insurance, quoted as it publishes it (Legal & General ↗). Anyone can be key if the business would lose profit without them.

03 · How much

How much cover startups need

For a business start-up, Royal London says the working capital at risk must be calculated, together with the key person's share of that risk, and that higher profit multiples may be justified for a rapidly expanding business (Royal London ↗).

LV= lists business start-up among its sizing options (LV= ↗).

Royal London calls profit the main way to value a key person (Royal London ↗).

Legal & General routinely averages the last 2 years' profit (Legal & General ↗).

Cover can also be set at a loan the business would need to repay if the key person passed away (Legal & General ↗).

Key person insurance calculator →

The key person’s yearly earnings (an example; change it)

Their earnings£80,000

Legal & General up to 10× earnings£800,000

Royal London up to 10× gross salary£800,000

Scottish Widows up to 10× earnings£800,000

Zurich up to 7× total remuneration£560,000

The most each insurer's published multiple would consider, applied to your figure. It is a ceiling, not a recommendation: underwriting sets the real limit. No premium is shown: a price needs an insurer's underwriting. Check the current multiple at each source: Legal & General ↗ · Royal London ↗ · Scottish Widows ↗ · Zurich ↗.

04 · Costs

Startup key person insurance costs

We do not publish premiums, and we found no insurer that publishes a key person rate to quote.

The price depends on the person and the cover.

For life insurance in general, MoneyHelper lists what sets it (MoneyHelper ↗).

Aviva says that if it cannot decide an application straight away, it covers the client for up to £1,000,000 of free life cover while it looks into the case (Aviva ↗).

What key person insurance costs →

What sets a life insurance premium, per MoneyHelper

Your age
Your health
Your lifestyle
Whether you smoke
Your family medical history
The length of the policy
Your occupation
The level of cover you buy

From MoneyHelper's guide to life insurance in general, not a key person price list (MoneyHelper ↗). We publish no premiums: we found no insurer that publishes a key person rate.

05 · Tax

Is it a startup expense?

HMRC allows the premiums only if the sole purpose is meeting a loss of trading income (HMRC ↗) and a life policy is term cover with no other benefits (HMRC ↗).

Founders usually own the company, and HMRC says a policy on directors who are major shareholders, but not other employees, may have a non-trade purpose (HMRC ↗).

Royal London says relief is unlikely where the person covered is a shareholder (Royal London ↗).

Key person insurance tax guide →

Company

Sole trader or partnership

Premiums on a key employee

Deductible only if the sole purpose is a loss of trading income (HMRC ↗)

The same test (HMRC ↗)

Life policy

Term cover with no other benefits (HMRC ↗)

Payout, premiums deducted

Trading income (s103 CTA 2009) (HMRC ↗)

Trading income (s106 ITTOIA 2005) (HMRC ↗)

Payout, premiums not deducted

Generally not trading income, with no assurance (HMRC ↗)

Cover on an owner

A non-trade purpose is possible for major-shareholder directors (HMRC ↗)

Not deductible, and benefits are not trading income (HMRC ↗)

Swipe to compare

Summarised from HMRC's Business Income Manual. Whether the sole-purpose condition is met is a question of fact (HMRC ↗); check your case with your accountant.

06 · Arranging

How to arrange key person insurance for startups

The company applies and owns the plan; each founder agrees and signs as the person covered (Royal London ↗).

Key person insurance for limited companies →Tech companies →

Check

Read your investment documents

Any insurance condition sets who is covered and for how much.

Identify

Find who the business depends on

Founders, and anyone whose skill or knowledge drives revenue.

Size

Working capital, investment or profit

The methods Royal London and LV= publish for start-ups.

Apply

The company applies as owner

Each person covered answers the health questions fully and accurately.

Firm

Use an authorised firm

The FCA tells consumers to check a firm on its Firm Checker first.

Sources: Royal London (Royal London ↗), the ABI on declined claims (ABI ↗), the FCA (FCA ↗).

07 · Claims

Claims, and how they pay

The ABI named two common reasons claims were declined: existing medical conditions not disclosed, and policy definitions not met (ABI ↗).

Full, accurate answers on the application deal with the first.

of new individual protection claims paid in 202497.9%

ABI (ABI ↗)

group and individual protection claims paid in 2024£8bn

ABI and GRiD (ABI ↗)

Figures for all individual and group protection, not key person cover alone.

09 · Sources

Check it for yourself

Every claim on this page is our summary of one of the documents listed here.

We last checked them against the live sources on 28 September 2026.

The documents are the authority, not this page.

Insurers and HMRC update them, so validate any figure or condition at its link before you rely on it.

Questions

Startup key person cover, answered

It depends on how much the business relies on its founders.

Legal & General says a start-up may be dependent on one or two individuals who are fundamental to the business’s success, and that the business must be able to show a loss of profits to insure someone as a key person.

If an investor has made cover a condition, your investment documents say who and how much. Legal & General ↗

No insurer publishes an amount for founders, and we do not estimate one.

For a business start-up, Royal London says the working capital at risk must be calculated, with the key person’s share of that risk; where a business has raised venture capital, the capital investment would be calculated and covered as appropriate. Royal London ↗

We publish no prices, and we found no insurer that publishes a key person rate.

For life insurance generally, MoneyHelper says the premium depends on things such as age, health, lifestyle, smoking, family medical history, the length of the policy and occupation, as well as the level of cover. MoneyHelper ↗

Only if HMRC’s conditions are met: the sole purpose is meeting a loss of trading income, and a life policy is term cover with no other benefits.

HMRC says a policy on directors who are major shareholders, but not other employees, may have a non-trade purpose, which matters when the founders own the company.

Ask your accountant. HMRC BIM45525 ↗

Beta · information only

Put a number on it, before you speak to anyone.

The key person insurance calculator works through the earnings, profit and loan methods, with the multiples UK insurers publish.

01Earnings, profit and loan methods

02Insurers’ published multiples, with sources

03No email, no quote, no sales call

Information, not advice

We are not an insurer, broker or regulated adviser, and we do not give quotes or recommend a policy. For regulated advice, use an adviser authorised by the FCA.

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Not financial advice. This page is general information. Before buying insurance, the FCA tells consumers to check the firm on its Firm Checker (FCA ↗). For free guidance, see MoneyHelper.