Key Person Cover Is on Your Life. Does It Count?

Key person cover is owned by your company and pays out to the business, not to you or your family. That structure makes people assume it lives in a separate world from their personal protection. For most purposes it does. But the one place the two worlds meet is the genetics rules, because the £500,000 figure that sits in them is measured per person, against the total amount of life insurance written on a single individual. So the careful answer to whether key person insurance counts towards the £500,000 limit is: assume that it does.

Here is the reassuring part, though, and it is easy to miss in the worry. That £500,000 threshold only exists for one condition. It governs whether an insurer may ask about a predictive test for Huntington's disease, and nothing else. For every other predictive genetic result — a BRCA fault, a Lynch syndrome result, an inherited cardiac gene — an insurer cannot ask you at any sum assured, whether the policy is personal, company-owned, or both. Aggregating your cover only matters if predictive Huntington's testing is genuinely in prospect for you.

If it is, the practical move is simple and worth doing before you apply for anything new. Add up every policy written on your own life, ask the insurer to confirm in writing how it treats company-owned business cover against the threshold, and take advice on the order you do things in if a test is coming.

The short answer: total it up and assume it counts

The rule that governs predictive genetic testing and insurance in the UK is the Code on Genetic Testing and Insurance, an agreement between the government and the insurance industry. Its central promise is that an insurer will not ask you to take a predictive genetic test, and will not require or use the result of one — with a single listed exception. That exception is Huntington's disease, and it applies only where the total amount of life cover is more than £500,000.

Source: HM Government and the Association of British Insurers, Code on Genetic Testing and Insurance.

The word that does the work is total. The threshold is not written per policy, and it is not written by reference to who owns the policy or who receives the money. It is written by reference to the amount of life insurance on an individual. Read plainly, that points towards aggregation: cover on your life adds up towards the line even where a company owns it and the benefit is payable to the business.

The Code was not drafted with a worked example of key person cover in front of it, so it does not spell the point out in terms. That is exactly why the safe working assumption is the cautious one. If you are the life assured, treat the cover as counting, and do not rely on the ownership of the policy to keep it on the other side of the line.

Why the threshold is written per person, not per policy

It helps to understand what the threshold is for. The concern behind allowing any question at all about Huntington's is anti-selection at very large sums — the worry that someone who knows they carry the fault could load up on cover the insurer would price differently if it knew. That risk attaches to the person and the total exposure on their life, not to any one contract. So the number is naturally framed around the individual.

Follow that logic through and company ownership changes little. Whether a policy is owned by you, by a trust, or by your company, the event that triggers a claim is the same event: your death. From the insurer's point of view the aggregate risk it is carrying on your life is what the threshold is trying to capture. A personal policy sitting alongside a separate slice of key person cover on the same life is one larger exposure on one person, and it would be optimistic to assume the second policy simply does not register towards the line.

None of this means the point is beyond argument. It means the direction of the wording runs against you if you are hoping company-owned cover is invisible, and that a prudent director plans on the basis that it is visible.

What key person cover and shareholder protection actually are

Three common business arrangements are all written on your life, and all three are worth counting when you tot up your exposure.

Key person cover is taken out by a company on the life of an individual whose loss would hurt the business — a founder, a lead salesperson, a technical linchpin. The company owns the policy, pays the premiums and receives the payout, which is meant to cushion the trading hit and buy time to recover. The life assured is you, so it counts towards a per-person threshold even though you never see the money.

Shareholder or partnership protection funds a buyout when an owner dies, so the surviving owners can purchase the deceased's stake and the family can turn shares into cash. It is often arranged as own-life policies written in trust under a cross-option agreement, or as life-of-another cover between owners. Either way there is a policy on your life, and it belongs in the same tally.

A relevant life policy is a death-in-service style arrangement an employer sets up for an individual employee or director, paying a lump sum to their family. It, too, is written on your life. If you hold personal cover, shareholder protection and a relevant life policy at once, the honest total is the sum of all of them, not the largest one.

Only Huntington's disease makes the £500,000 line matter

This is the section to slow down on, because it is where most of the anxiety turns out to be misplaced. The threshold is not a general "large policies get genetically tested" rule. It is specific to one condition.

Appendix to the Code lists the results an insurer may ever ask about, and it contains Huntington's disease alone. For a predictive Huntington's result, the insurer may ask only if the total life cover applied for exceeds £500,000. For everything else — hereditary cancers, inherited cardiac conditions, the results that surface on a shop-bought ancestry kit — no predictive result may be asked for at all, at any sum assured, no matter how much cover you hold.

So if your family history points at bowel cancer, breast cancer, an arrhythmia or dementia rather than Huntington's, the aggregation question is academic. There is no threshold to cross, because there is no question the insurer is allowed to ask. If you want the plain version of that reassurance for a specific condition, our guides on why a predictive Lynch syndrome result is never askable and on life insurance where long QT syndrome runs in the family both walk through it. The aggregation worry is real for exactly one gene, and for most directors that gene is not the one on their mind.

What a cautious director should do before applying

If Huntington's disease is a live question in your family and you are arranging or increasing cover, the sensible steps are unglamorous and effective.

Start by listing every policy written on your life and its sum assured: personal life cover, mortgage protection, any relevant life policy, key person cover, and shareholder or partnership protection. Add them together. That total, not any single figure, is what a cautious reading of the Code puts against the £500,000 line.

Then think about order. If you are below the threshold now and testing is in prospect, applying for cover while the aggregate stays under £500,000 keeps every predictive result — Huntington's included — outside what the insurer may ask. Pushing the total over the line is the only thing that opens the door to a Huntington's question, and only for that condition. Sequencing an application and a test thoughtfully is a legitimate, sensible thing to do; it is not the same as concealing anything, because a result the insurer may not ask for is one you are entitled not to volunteer.

What you should not do is skip or delay clinically useful testing out of insurance fear. If a genetics team is offering you a test, the medical reasons for having it almost always outweigh the insurance arithmetic, a point we make in full in why you should not skip a test to protect your insurance.

Confirm the insurer's interpretation in writing

Because the Code does not address company-owned cover in explicit terms, the single most useful thing you can do is ask the insurer to tell you, in writing, how it treats key person and shareholder protection against the threshold. Different insurers may answer slightly differently, and a written answer protects you either way: it either confirms the cautious assumption, or gives you a documented basis for treating company cover as outside the line.

Ask the question before you submit anything, and keep the reply. If you later needed to challenge a decision you believed had leaned on a protected result, that correspondence is part of your file. The route for such a challenge, with its deadlines, is set out in our guide to family history, inherited risk and the odds, which links the specialist pieces on complaints and the Financial Ombudsman together.

This is also an area where a broker earns their place. Arranging personal protection, shareholder protection and key person cover so the medical questions are answered accurately and the totals are understood is not a job for guesswork on a comparison site. You can get life insurance quotes and have an FCA-authorised broker structure the cover in the right order, so nothing a protected result should shield ever reaches the form.

The genetics rule is separate from the tax rule

One reason business protection feels complicated is that several different sets of rules bear on the same policy at once, and it is easy to let them blur together. The genetics threshold is only one of them, and it is not the one that usually decides how a policy is set up.

How the premiums are treated, and how any payout is taxed, is a completely separate question from whether a predictive result can be asked for. Whether a key person premium is deductible, and what that choice does to the tax on the proceeds, is a matter we cover in how whole of life cover affects the key person deduction. How a personal or trust-held payout can face inheritance tax, and how a trust changes that, is covered in why a life payout can be taxed and how trusts prevent it. And if you draw a modest salary and take most of your income as dividends, the amount of cover an insurer will offer can itself be constrained, which we explain in whether low salary and high dividends limit your cover.

Keep the two ideas apart in your head. The genetics rule decides what an insurer may ask about your predictive test results. The tax and structuring rules decide who owns the policy, who pays, and how the money is treated when it arrives. Getting the second set right is where most directors spend their time; the first set only bites in the narrow Huntington's case above the threshold.

Scotland and Northern Ireland

The Code on Genetic Testing and Insurance is an agreement covering insurers across the whole of the United Kingdom, so the core position is the same in Scotland and Northern Ireland as in England and Wales. A predictive result cannot be asked for, Huntington's disease above £500,000 of total life cover aside, and the threshold is measured against the individual whatever the ownership of the policy. The Consumer Insurance (Disclosure and Representations) Act 2012, which governs answering the questions you are asked with reasonable care, applies UK-wide as well.

What can differ across the nations is company law and the mechanics around a shareholder or partnership buyout, and the way clinical genetics services are organised if testing follows. Those affect how you structure the agreement and where you are seen, not the insurance rule itself. Wherever you are in the UK, the same cautious assumption holds: cover written on your life counts towards the per-person line, and only Huntington's makes that line matter.

Frequently asked questions

Does key person insurance count towards the £500,000 genetic limit?

The Code's threshold is expressed by reference to the amount of life insurance on an individual, so a cautious reading is that cover written on your life counts even where the company owns the policy and receives the benefit. The Code does not address company-owned cover in explicit terms, so ask the insurer to confirm its interpretation in writing before you apply, and treat the cover as counting unless it tells you otherwise.

Why does this only matter for Huntington's?

Because Huntington's disease is the only condition insurers may ask a predictive result about, and only above £500,000 of life cover. If your total cover stays below that line, no predictive genetic result can be requested, whatever the condition and regardless of who pays the premiums or owns the policy. For every gene other than Huntington's, the threshold is irrelevant, because the result cannot be asked for at any sum assured.

What should a director at risk do?

Total up your personal cover, any relevant life policy, shareholder protection and key person cover written on your own life before applying for more. If the aggregate would pass £500,000 and predictive Huntington's testing is in prospect, take advice on sequencing before you submit an application, and do not delay a clinically useful test to manage the insurance position. Ask the insurer to confirm in writing how it treats company-owned cover against the threshold.