Key person insurance: what it is and how it works

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By Tony Smilevski · Updated 11 October 2026

Key points

• Acenda's PDS says Revenue Protection (Key Person) insurance is used by a business or employer to protect against financial loss that may result from the loss of service of a key person in the event of death, sickness or injury.[1]
• Acenda's Personal Protection Portfolio PDS says the policy owner is the person or entity entitled to receive benefits, and can be an individual, a company, a partnership or the trustee of a family trust (income protection must generally be owned by the life insured).[2]
• Zurich's Business Expenses policy, where key person replacement is the cover type chosen, reimburses key person replacement costs if the life insured is disabled for longer than the waiting period: no benefit for a month with no costs, you can insure up to 75% of those costs, a replacement who is an immediate family member doesn't count, and no benefit if the life insured is no longer employed by the business or stops being a business owner before the claim.[3][4][5]
• Acenda's PDS lists Revenue Protection (Key Person) insurance, as a business purpose for its Business Safeguard Option, as outside super only,[6] and Zurich's Death cover TMD and OnePath's Life Cover TMD mark their business needs as not for cover held in super.[7][8]
• The ATO's ruling IT 155 (28 June 1968) says that when deductions for premiums are considered, special efforts are needed to determine the purpose for which the insurance was taken out.[9]

Key person insurance is cover used by a business to protect against the financial loss of someone it depends on. The policy owner, often the business, pays the premium and receives any benefit. "Key man" insurance is the older name. This guide draws on insurer product disclosure statements (PDSs), target market determinations (TMDs) and an ATO ruling.

What is key person insurance?

It is insurance a business holds on the life or health of a person whose loss would hurt it financially. Acenda's PDS says Revenue Protection (Key Person) insurance "is used by a business or employer to protect against financial loss that may result from the loss of service of a key person in the event of death, sickness or injury."[1]

The ATO's Taxation Ruling IT 155, dated 28 June 1968, says the term "key man" insurance "is used in the industry to denote insurance on the life of a director, partner, employer or other 'key' person associated with the taxpayer in business."[9]

How does key person insurance work?

In a key person arrangement the policy owner, often the business, applies, pays the premiums and is entitled to the benefit. The person insured is the life insured. Acenda's Personal Protection Portfolio PDS says the policy owner is the person or entity entitled to receive benefits, and can be an individual, a company, a partnership or the trustee of a family trust.[2]

The insurer also assesses the person insured. PPS Mutual's TMD says issuing a policy is subject to full underwriting, including medical and financial underwriting assessment, as applicable.[10] Some cover depends on the person staying: Zurich's PDS says it won't pay a benefit for key person replacement "if the life insured is no longer employed by your business or stops being a business owner before the claim."[5] See our claims guide.

What does key person insurance cover?

It depends on the type of cover the business holds. The documents we hold describe:

• Lump-sum cover (death, TPD, trauma). AIA's Life Cover TMD refers to a business continuing "with less financial disruption upon the loss of a key person, or to ensure business succession".[11] Zurich's TMDs describe business needs tied to the loss of a key-person through death or terminal illness,[7] "total and permanent disability"[12] or "a specified trauma condition".[13] See our TPD insurance guide and trauma insurance guide.
• Disability-based business cover. Zurich's Business Expenses policy pays a monthly benefit that reimburses either allowable business expenses or key person replacement costs if the life insured is disabled for longer than the waiting period.[3] Key person replacement costs means "the cost of a locum or replacement person who is paid for by the policy owner while the life insured is disabled". No benefit is payable for a month with no costs, and the PDS says you can insure up to 75% of those costs. Costs don't include a replacement who is an immediate family member or, for a company-owned policy, has a controlling interest. It won't pay for the same period as an income protection benefit for the same person.[4][5] Zurich's TMD says this cover is designed for small business owners.[14]

Some options depend on the business purpose. The Acenda Insurance PDS lists three for its Business Safeguard Option, which lets a policy owner increase cover after a business event: an ownership (buy/sell) agreement, asset protection (loan guarantee) insurance, and Revenue Protection (Key Person) insurance, which it lists as outside super only.[6]

Zurich's Death cover TMD and OnePath's Life Cover TMD mark their business needs as not for cover held in super.[7][8] See our life insurance in super guide.

Who counts as a key person? Directors and business owners

There is no single definition. Insurers use their own wording:

• Acenda Insurance PDS: "an employee or business owner without whose knowledge or expertise the business would suffer material financial loss."[1]
• OnePath OneCare PDS: someone crucial to the business operations, where the business would suffer financial loss if they died or became disabled, which "must be able to be reasonably demonstrated to us."[15]
• MetLife PDS: "a director, officer, senior manager or person employed to perform services by a business and who is responsible for at least 20% of the business revenue". It adds that a key person has "specialist skills, knowledge or business relationships that are not able to be continued by another person in the business."[16]
• AIA PDS: gives "working partner, director or significant shareholder" as examples.[17]

Directors, partners, owners and employees can all fall within these descriptions.

How the insurers compare

How each insurer's PDS describes a key person (no single definition exists; insurers use their own wording):

• Insurer: Acenda — How its PDS describes a key person: "an employee or business owner without whose knowledge or expertise the business would suffer material financial loss."[1]; Where the wording sits: Acenda Insurance PDS.[1]
• Insurer: OnePath — How its PDS describes a key person: Someone crucial to the business, whose death or disability would cause it financial loss; this "must be able to be reasonably demonstrated to us."[15]; Where the wording sits: Its Business Guarantee Option terms.[15]
• Insurer: MetLife — How its PDS describes a key person: A director, officer, senior manager or employee responsible for at least 20% of business revenue, with specialist skills, knowledge or relationships others in the business cannot continue.[16]; Where the wording sits: MetLife Protect PDS key person definition.[16]
• Insurer: AIA — How its PDS describes a key person: Gives "working partner, director or significant shareholder" as examples only, not a full definition.[17]; Where the wording sits: Its wording on increasing cover when your value to the business increases.[17]

Is key person insurance tax deductible?

It depends on why the business took out the policy and on its circumstances. We can't say how tax applies to any business.

IT 155 says: "As a general rule, it will be necessary when the question of allowing deductions for premiums is under consideration to make special efforts to determine the purpose for which the insurance was taken out."[9]

How tax applies depends on the business's circumstances. A registered tax agent or accountant can say how it applies to a business. See also our tax deductibility guide.

How is key person insurance different from buy/sell and business expenses insurance?

Key person cover is about losing someone the business relies on. Buy/sell cover funds the purchase of a departing owner's share. AIA's Life Cover TMD mentions the loss of a key person and business succession as different business needs.[11] Zurich's Business Expenses TMD describes a monthly benefit for ongoing fixed business expenses or the costs to hire a replacement employee while the life insured is disabled due to sickness or injury.[14] Zurich's key person replacement option sits inside that product, so the labels can overlap. See our business protection insurance guide.

How is it different from personal life insurance?

Zurich's Death cover TMD sets out separate needs for personal consumers (such as financial dependants and mortgage debt) and for consumers who are a business.[7] See our life insurance guide.

Who offers key person insurance?

We deal with 11 Australian life insurers. We don't rank them. Whether key person cover is available, and on what terms, depends on the insurer and the product. Some insurers deal with it through options that let a policy owner increase cover after a business event. Each insurer's PDS and TMD in our PDS and TMD library sets out its terms.

How much key person cover does a business need?

We can't say what amount suits a business. That depends on the business's own circumstances, and this page doesn't take them into account. We don't give quotes or a calculator here.

Insurers ask for financial evidence of a key person's value. For example, OnePath's PDS asks for current business financial statements and income tax returns, and a calculation of how the key person cover need has been worked out, when a policy owner applies to increase key person cover.[15]

Do I need key person insurance?

We can't tell you whether you need it. That depends on your own circumstances, and this page doesn't take them into account.

The cover responds only to the events the policy lists. Zurich's key person replacement cover pays nothing for a month with no costs.[4] The premium is an ongoing business cost. Zurich's TPD TMD says the cost of cover will generally increase over time, and that cover will be cancelled, and the life insured won't be covered, if premiums are not paid.[18]

Questions to ask before you choose

• Who is the policy owner, and who is the life insured?
• What is the business purpose: lost revenue, business debt or an owner's exit?
• Which events does it pay on, and is the benefit a lump sum or a reimbursement of costs?
• How does the insurer define a key person, and what financial evidence does it want?
• What happens if the person leaves the business or ownership changes?
• Can the cover be held in super? Some insurers list key person cover as outside super only.
• Could the tax position change with the purpose? (A registered tax agent or accountant can say.)

Read the insurer's PDS and TMD before deciding. You can find them in our PDS and TMD library. For general information about anything in this guide, book a time with Tony or call 0433 22 77 11.

Sources

• [1] Acenda Insurance and Acenda Insurance (Super) PDS (Apr 2026), PDF page 125.
• [2] Acenda Personal Protection Portfolio and Life Cover Super PDS Combo Kit (Sep 2025), PDF page 101.
• [3] Zurich Wealth Protection PDS and policy conditions (Nov 2025), PDF page 7.
• [4] Zurich Wealth Protection PDS and policy conditions (Nov 2025), PDF page 51.
• [5] Zurich Wealth Protection PDS and policy conditions (Nov 2025), PDF page 60.
• [6] Acenda Insurance and Acenda Insurance (Super) PDS (Apr 2026), PDF page 67.
• [7] Zurich TMD (Nov 2025), PDF page 2.
• [8] OnePath TMD (Mar 2026), PDF page 2.
• [9] Australian Taxation Office, Taxation Ruling IT 155: Key man insurance (retrieved 30 September 2026).
• [10] PPS TMD Life-Insurance (Sep 2026), PDF page 5.
• [11] AIA TMD (Aug 2026), PDF page 1.
• [12] Zurich TMD (Nov 2025), PDF page 9.
• [13] Zurich TMD (Nov 2025), PDF page 17.
• [14] Zurich TMD (Nov 2025), PDF page 44.
• [15] OnePath OneCare PDS (Mar 2026), PDF page 62.
• [16] MetLife Protect and Combined PDS / Policy Terms (Nov 2025), PDF page 147.
• [17] AIA Priority Protection and Priority Protection for Platform Investors PDS (Aug 2026), PDF page 127.
• [18] Zurich TMD (Nov 2025), PDF page 11.

Just so you know, Tony Insurance operates under Sustainable Life Solutions (AFSL 536966) and can only give general advice about life insurance. That means we'll tell you what you need to know for you to make a good decision, but we can't give you specific advice or recommendations. It also means that everything on our website is only general information and isn't specific to you.

Toni Smilevski, Authorised Representative 343156 of Sustainable Life Solutions Pty Ltd (AFSL 536966)