How is key person insurance different from personal life insurance?

The fundamental differences between key person insurance and personal life insurance relate to ownership, beneficiary, and purpose. Key person insurance is owned and paid for by the business, with the business named as the beneficiary. All benefits are paid directly to the company in the event of a claim. In contrast, personal life insurance is owned by the individual, with premiums paid by them (or their employer as a benefit), and benefits going to their family or nominated beneficiaries. The purpose also differs significantly - key person insurance protects the business from financial losses due to losing a key employee, covering costs like revenue replacement, debt repayment, and recruitment expenses. Personal life insurance protects the individual's family from financial hardship after their death. The tax treatment is also different: key person insurance premiums for revenue purposes are tax-deductible to the business with proceeds assessable as income, while personal life insurance generally has no tax deduction but benefits are received tax-free by beneficiaries. Additionally, key person insurance cannot be transferred to the individual if they leave the company.