Key man insurance is cover a business takes out on a person whose death or disablement would hurt revenue, paid to the business rather than the family. To set it up, identify who is essential, value their contribution, choose a policy type, name the company as owner and beneficiary, and review annually.

Most owners can name the two or three people the business could not easily lose. Few have put a dollar figure on that loss, let alone insured it. This guide walks you through the steps in the order you would do them.

What is key man insurance and how does it protect revenue?

Key man insurance (also called key person insurance) is a policy on the life or health of someone your business depends on. The business owns the policy, pays the premiums and receives the benefit. The person insured, and their family, do not.

That ownership structure is the point. If your top estimator dies or becomes permanently disabled, the payment lands in the business account. You can use it to cover lost revenue, hire and train a replacement, or keep lenders and suppliers steady while you find your feet.

Owners tend to underestimate the exposure. In a 2026 survey of 200 U.S. business owners, Plain Talk Insurance found that 49% believed their company would shut down immediately upon their death. The same survey found that only 14.5% of owners carry key person insurance. These are U.S. findings, but the gap between perceived risk and actual cover is a useful warning for any owner.

Before you go further, settle the purpose of the cover. There are two, and they lead to different decisions on sum insured and tax:

• Revenue purpose: replacing lost profit and covering the cost of finding and training a successor.
• Capital purpose: funding a buy-out of a co-owner's share or repaying a business debt tied to that person.

Many policies blend the two, but you should know which one drives the sum insured. The tax section later in this guide explains why the distinction matters.

Step 1: Identify who counts as a key person in your business

A key person is anyone whose loss would cut revenue or stall operations faster than you could fix it. That is wider than founders and directors. Often the person who matters most is not on the org chart's top line.

Common key people include:

• Founders and owner-operators who hold the main client relationships
• Top salespeople or business developers who bring in a large share of new work
• Licensed supervisors or nominated persons whose licence your contracts depend on
• Technical specialists who hold knowledge nobody else has
• Relationship holders who manage your biggest clients, suppliers or financiers

If you run a construction or trade business, think about the site supervisor whose licence or certification your projects rely on, or the estimator who prices every tender. The same logic applies to key man insurance for business owners in any small company, where the owner is usually the first name on the list.

Run each person through four questions:

1. Would revenue fall within three months if they left tomorrow?
2. Could you replace them in under three months at a similar cost?
3. Do clients, lenders or insurers deal with them personally?
4. Does anyone else hold their knowledge, licence or relationships?

If you answer yes to the first, no to the second, yes to the third or no to the fourth, treat that person as a key person. Write the names down with a one-line reason for each. That short list becomes the basis for the next step.

Step 2: Work out how much cover you need

Your sum insured should reflect what the person's loss would cost the business, not what feels affordable. There are three common ways to value a key person, and it helps to run more than one and compare.

Multiple of salary. You take the person's annual remuneration and apply a multiple to reflect the years it would take to recover. It is quick, but it ignores how much revenue the person actually generates.

Revenue or profit contribution. You estimate the revenue or profit the person is responsible for, then decide how many years of lost contribution to cover. This suits salespeople, rainmakers and owner-operators.

Replacement and recruitment cost. You add up recruiter fees, training time, lost productivity during the handover and any retention payments to keep the team steady. This suits specialists and supervisors.

A hypothetical example. Say a key salesperson brings in work that generates a large share of the business's annual profit. The business expects a replacement would take two years to reach the same level, and recruitment and training would carry a further cost. On a profit-contribution basis, you add two years of lost profit to the recruitment and training cost to reach a sum insured. These figures would be your own estimates, not a benchmark.

Settle on a figure you can explain to your accountant and your broker. If the business has debt linked to the person, add that as a separate capital amount rather than burying it in the revenue figure.

Step 3: Choose the policy type, key man insurance vs life insurance

Key man insurance is not a separate product so much as a way of arranging existing cover types, with the business as owner and beneficiary. The question is which cover types suit the person you are insuring.

The main options for a key person are:

• Life cover: pays a lump sum to the business on the person's death.
• Total and permanent disability (TPD) cover: pays a lump sum if the person can no longer work in a way that meets the policy definition.
• Trauma cover: pays a lump sum on diagnosis of a listed serious illness, such as cancer or a heart attack.
• Income protection: pays a monthly benefit during a period of illness or injury, subject to the policy terms.

Disability matters as much as death. A key person who survives a stroke but cannot return to work still leaves a revenue gap, and the business keeps paying costs while the seat is empty. A policy that covers death alone leaves that risk uninsured. For the monthly benefit side, see the guide to income protection insurance.

Key man insurance vs life insurance comes down to who owns the policy and who receives the money. Most key people already hold personal life insurance, and that cover pays their family. It does not pay the business.

Personal cover can still show that the person is insurable. A 2026 Principal survey of U.S. small business owners found that 95% of manufacturing owners maintain individual life insurance policies. That is a U.S. finding about manufacturers, so treat it as context only. The point stands: personal cover does not protect the business.

Also decide between term and permanent cover. Term suits a temporary risk, such as a loan or a project with a fixed end date. Permanent cover suits a long-term dependency on the person.

How much does key man insurance cost per month?

There is no standard price for key man insurance, because the premium depends on the person being insured and the cover you choose. Any single monthly figure you see online is an average that may not apply to your business.

The main drivers of key man insurance cost are:

• Age: premiums generally rise as the insured person gets older.
• Health and medical history: insurers assess this at application and may load the premium or exclude certain conditions.
• Smoker status: smokers generally pay more.
• Occupation: manual or higher-risk work can raise the price, especially for disability and income protection.
• Sum insured: a larger benefit means a higher premium.
• Term versus permanent: permanent cover generally costs more than term for the same sum.
• Added cover types: adding TPD, trauma or income protection increases the total.

This is why quotes for two people can differ sharply, even with the same sum insured. Two 45-year-olds in different occupations and health may sit far apart.

To plan the key man insurance cost per month, work backwards. Start with the sum insured from Step 2, then ask for quotes on several structures: life only, life with TPD, and life with TPD and trauma. Compare each premium against the revenue it protects. A premium that is small next to the insured person's contribution is easier to justify than one you judge only against last year's insurance bill.

You can also ask for a staged approach. Some businesses insure the highest-risk person first and add others as cash flow allows.

ABS Insurance Brokers is an Australian-owned insurance brokerage that sources and arranges specialist insurance policies for builders, construction businesses, and general commercial clients. It does not publish pricing. Cost is quote-based, so a broker needs the person's details and your chosen cover before giving a figure. Your pricing will also sit alongside other business covers, such as business interruption insurance, when you build the full program.

Is key man insurance tax deductible in Australia?

Whether key man insurance is tax deductible depends on the purpose of the cover and who owns the policy, not on the label "key man". Australian treatment is not a single yes or no, so you should confirm your position with your accountant before you rely on it.

In general terms, the question turns on whether the cover protects revenue or capital:

• Revenue purpose: cover intended to replace lost profit or cover the cost of a replacement may be treated differently from cover held for a capital reason.
• Capital purpose: cover that funds a buy-out of a co-owner's share or repays business debt is generally approached as a capital matter.

The same split can affect whether the payout is treated as assessable income to the business. Ownership matters too, because a policy owned by the business is treated differently from one owned by the individual or by a super fund. Because the rules turn on facts specific to your structure and the policy's purpose, this guide makes no definitive statement on deductibility or on how a benefit will be taxed.

It also helps to separate Australian practice from what you read overseas. In the United States, a federal rule known as Section 101(j) requires the employee's written notice and consent before the employer takes out life cover on them, in order to keep the death benefit tax-free. That is a U.S. requirement. It does not describe the Australian position, though getting written consent from the person you insure is still sensible practice here.

Many pages on key man insurance in Australia are written from a U.S. perspective, so check the source before you accept a tax claim.

Before you apply, take these to your accountant:

1. The purpose of the cover (revenue, capital or both)
2. The proposed policy owner and beneficiary
3. The business structure (company, trust, partnership)
4. The cover types you plan to include

A short conversation at this stage can save you from restructuring the policy later. Once your accountant confirms the approach, your broker can arrange the cover.

Steps 4 and 5: Get written consent, then put the policy in place

Step 4: Get written consent. Ask each key person to agree in writing before the policy is arranged. The insurer will need their medical and financial details anyway, and a signed consent protects the relationship. Record what the cover is for, who owns it and who receives the benefit. In Australia this is a practical safeguard, not a replacement for the U.S. rule described above.

Step 5: Put the policy in place. The business should be the policy owner, the premium payer and the named beneficiary. Choose between term and permanent cover, using your answers from Step 3, and set a calendar date to review the sum insured each year. Revenue, headcount and debt all move, and the cover should move with them.

A broker can handle the comparison for you. ABS Insurance Brokers operates as part of the Steadfast Network, which gives the team access to a range of insurers and products. You can read how that works in the guide to a Steadfast Network broker. Call the team or send an online quote request, and a broker will help you find the right cover. As noted above, pricing is not public, so expect a quote built around the people you want to insure.

Prices and plan limits verified as of November 2026.

FAQs

What is a key man insurance policy and who is a key person?

A key man insurance policy is cover the business owns on someone whose death or disablement would hurt revenue. The business pays the premiums and receives any benefit. A key person is anyone whose loss would cut income or stall operations faster than you could replace them, including founders, top salespeople, licensed supervisors and specialists.

How much does key man insurance cost per month?

There is no standard monthly price. Premiums depend on the insured person's age, health, smoker status and occupation, the sum insured, whether cover is term or permanent, and any added cover types. Because pricing is quote-based, a broker needs the person's details and your chosen structure before giving a figure.

Is it worth paying for income protection or total and permanent disability cover alongside key man insurance?

Often, yes. A key person who survives an illness or injury but cannot work still leaves a revenue gap, and death cover alone does not respond. TPD pays a lump sum for permanent disability, while income protection pays a monthly benefit, subject to the policy terms. Which you need depends on your cash flow and risk.

Who are the top insurance companies offering key man cover in Australia?

Several Australian life insurers offer business-owned cover, and the best fit depends on the person being insured and the structure you choose. A broker is not an insurer, so it does not rank providers. ABS Insurance Brokers can compare options across the insurers it accesses through the Steadfast Network, based on your details.

Does key man insurance cover a business partner or co-owner?

Yes, a co-owner can be insured as a key person, and the same cover types apply. If the aim is to fund a buy-out of their share, that is a capital purpose, which may be treated differently for tax. Policy ownership and structure matter, so speak to your accountant and broker before you set it up.

Can a sole trader or a small business with no employees use key man insurance?

Key man insurance depends on a business that can own a policy and receive a benefit, so it suits businesses with a key person other than, or in addition to, the owner. A sole trader with no employees usually looks at personal income protection, life or TPD cover instead. A broker can advise which structure fits your situation.

Conclusion

Key man insurance protects the business, not the family. It is worth arranging only if you can name the people whose loss would hit revenue and put a sensible figure on that hit. Cover death and disability, keep the business as owner and beneficiary, and expect tax treatment to turn on purpose and structure.

Start by writing down your key people and the sum each would cost you to lose. Then take that list to your accountant to confirm the tax position, and to a broker to compare quotes.

Glen Sim Business Development Manager

Glen Sim is a building and construction professional with more than 35 years of industry experience. He contributes practical industry insight to ABS Insurance Brokers content for builders, contractors and Australian businesses.

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