Key Person Insurance for Internationally Operating Businesses

In any business, certain individuals are so central to its operations, revenue generation, or client relationships that their unexpected death or incapacitation would cause severe financial disruption. This is true of domestic businesses; it is compounded in businesses operating internationally, where key individuals often carry country-specific knowledge, relationships, and regulatory standing that is genuinely irreplaceable in the short term.

Key person insurance is the primary mechanism for protecting a business against this risk. This guide focuses on the specific considerations for internationally operating businesses — those with entities, employees, or clients in more than one country.

What Is Key Person Insurance?

Key person insurance is a life assurance (and sometimes critical illness or income protection) policy that a business takes out on the life of an individual who is critical to its operations. The business is both the policyholder and the beneficiary: it pays the premiums and receives the death benefit.

The proceeds are used to:

• Provide cash flow to cover the cost of recruitment and replacement
• Compensate for lost revenue or contract value attributable to the key person
• Repay loans or financing that were contingent on the key person's involvement
• Fund a business restructuring required by the loss
• Stabilise the business during a difficult transition period

Who Is a Key Person?

The definition is broader than it first appears. Common examples include:

• Founders and managing directors whose vision, relationships, and profile are central to the business's identity
• Revenue generators — salespeople, traders, or consultants whose individual client books represent a disproportionate share of revenue
• Technical specialists — engineers, developers, or researchers whose skills are unique and for which there is a limited labour market
• Regulatory approvals holders — individuals who hold personal licences, authorisations, or certifications required for the business to operate in a specific jurisdiction
• Market entry leads — for an internationally expanding business, the individual who holds the relationships and cultural knowledge in a new market is acutely irreplaceable
• Guarantors — directors who have personally guaranteed company debt

For internationally operating businesses, the regulatory approval holder and market entry lead categories are particularly important. Losing the individual who holds a financial services licence, a construction permit, or a market access approval in a foreign country can put an entire trading operation at risk.

Calculating the Sum Assured

There is no single formula, but several approaches are used in practice:

Revenue/Profit Multiple

If the key person is responsible for a definable proportion of the company's revenue, the sum assured is calculated as a multiple of that revenue contribution — typically one to five years' profit attributable to that individual. The multiplier reflects the expected time required to replace the revenue.

Loan Repayment

If the key person has personally guaranteed business loans, the sum assured should at minimum equal the outstanding balance of those loans.

Replacement Cost

This calculates the realistic total cost of recruiting and inducting a replacement — executive search fees (which for senior international roles can reach 25–35% of first-year salary), relocation costs, signing bonuses, and the productivity gap during the learning period. For internationally mobile roles with multi-country fluency requirements, this cost can be substantial.

Multiple Approach

A blended calculation: revenue contribution + replacement cost + outstanding guaranteed debt. This tends to produce a sum assured large enough to allow the business to absorb the shock of the loss while executing its recovery plan.

For businesses with multiple entities in different countries, each entity may need its own key person assessment. The legal structure of the business determines which entity should own the policy and receive the benefit.

International Business Structures: Policy Ownership and Benefit Flow

This is where internationally operating businesses face complexity that purely domestic businesses do not:

Which entity owns the policy? For tax purposes, the policy should typically be owned by the legal entity that would suffer the financial loss. If the key person works primarily for a Dubai entity but is also a director of a UK holding company, the Dubai entity's interest is the more direct one.

Multi-entity structures. Where the key person's loss would affect multiple entities — as is common in international group structures — it may be necessary to take out separate policies with each affected entity as the owner, or to structure a single policy with a mechanism for allocating proceeds across entities.

Cross-border premium payment. The premium should be paid by the entity that is the policyholder. Tax deductibility of the premium depends on the tax rules of the jurisdiction where that entity is resident.

Currency denomination. The policy should be denominated in the currency of the entity's primary operating currency, or the currency in which the covered financial loss would most naturally be expressed.

Tax Treatment by Jurisdiction

The tax treatment of key person insurance is not uniform internationally. The core questions are:

1. Are the premiums tax-deductible? In the UK, premiums on a key person life policy are potentially tax-deductible if: the relationship is employer–employee, the policy is on a short-term (term assurance) basis, and the proceeds are used for revenue purposes (compensating for trading loss). The same logic applies in many common law jurisdictions. However, civil law jurisdictions may treat premiums differently. Tax deductibility is not guaranteed and must be confirmed with a local tax adviser.

2. Are the proceeds taxable? Where premiums are deductible, proceeds are typically taxable as trading income in the hands of the business (consistent treatment). Where premiums are not deductible, proceeds are typically received free of tax. Mixing the treatment — deductible premiums but tax-free proceeds — is generally not achievable. The approach must be consistent and documented.

3. Transfer pricing. For multinational groups, any arrangement under which a parent company funds key person insurance for the benefit of a subsidiary, or vice versa, may be scrutinised under transfer pricing rules.

4. Withholding taxes. Proceeds paid from a foreign insurer to a domestic corporate entity may be subject to withholding tax in the insurer's jurisdiction. This should be confirmed before placing the policy with an offshore provider.

Underwriting Considerations for International Key Persons

Underwriting a key person policy follows a similar medical process to individual life assurance — the key person's health, age, lifestyle, and occupation are assessed. For internationally operating businesses, additional factors apply:

Country of residence and travel. A key person who travels frequently to high-risk jurisdictions — or is resident in one — may attract premium loadings or exclusions. Full disclosure of travel patterns is required.

Occupation hazard. Senior executives in sectors such as oil and gas, mining, infrastructure, or security in challenging environments may face occupational ratings. This should be factored into the sum assured and premium budget.

Multiple policies. If a key person is also covered by personal life assurance and shareholder protection, the total amount at risk in the event of death must be declared to each insurer. Aggregate amounts above non-medical limits will trigger full underwriting requirements.

Offshore provider advantages. International providers in Isle of Man, Bermuda, and similar jurisdictions are experienced in underwriting internationally mobile key persons and are familiar with occupation and residency factors across a wide range of countries.

Critical Illness and Income Protection Extensions

Key person arrangements are not limited to life assurance. The business may also need to consider:

Key person critical illness insurance. Pays a lump sum if the key person is diagnosed with a specified serious illness (cancer, heart attack, stroke, etc.) and survives. This is increasingly included in international key person arrangements given the significant disruption that serious illness — even if not fatal — can cause.

Key person income protection. Provides a monthly benefit if the key person is unable to work due to illness or injury. This is more granular than a lump-sum life or CI benefit but requires careful definitions (own occupation, any occupation) and an appropriate deferred period.

Review and Lapse Risk

Key person policies must be reviewed regularly:

• Sum assured should be updated as the business grows (or if the key person's revenue contribution changes)
• A policy taken out on a five-year term may be due for renewal at a time when the key person is older and less healthy — planning ahead avoids gaps
• When a key person leaves the business, the policy must be either cancelled, transferred to the individual's personal ownership (where permissible), or converted to a new purpose

Lapsing a key person policy inadvertently — because the business misses a premium — leaves the business uninsured with no warning. Premium payment should be treated as a priority standing order.

Coordination with Shareholder Protection

Key person insurance and shareholder protection insurance are sometimes confused but serve different purposes:

• Key person insurance compensates the business for the loss of a key individual's contribution
• Shareholder protection enables the remaining shareholders to buy out the deceased shareholder's equity from their estate at an agreed price

A person can be both a key person and a shareholder. In that case, both arrangements may be needed and should be coordinated so that they do not overlap inappropriately or leave gaps.

How Global Investments Can Help

Global Investments works with internationally operating businesses to design and implement key person insurance arrangements that reflect the complexity of multi-jurisdictional structures. We can identify which entities should own policies, calculate appropriate sum assured levels, source international providers with the underwriting capacity to cover high-profile individuals in challenging locations, and coordinate with local tax advisers regarding premium deductibility and proceeds treatment.

We also review existing key person arrangements to ensure they remain current — a policy from five years ago in a business that has since expanded internationally may no longer be fit for purpose.

This guide is for information only. Tax treatment of key person insurance varies by jurisdiction and must be confirmed with a qualified tax adviser. Policy terms vary and underwriting is subject to the health and circumstances of the individual. Seek regulated financial advice before proceeding.