How does business structure affect key person insurance arrangements?

Business structure significantly impacts how key person insurance should be structured, owned, and taxed in Australia. For sole traders, the individual is both the business and the key person, making traditional key person insurance inapplicable - personal income protection and life insurance are more appropriate since the business ceases if the owner can't work. For partnerships, each partner is typically a key person requiring coverage for both revenue purposes (maintaining partnership operations) and capital purposes (buying out a partner's share). Partnerships often use cross-ownership structures or trust-owned policies to optimise tax outcomes. For companies, the company itself owns and pays for key person insurance on directors, shareholders, or critical employees, with clear differentiation between revenue and capital purposes. Corporate structure provides cleaner tax treatment since the company is a separate legal entity. For trusts operating businesses, the trustee takes out insurance on key individuals, with careful consideration of whether the trust or underlying business entity should own policies. Family businesses have additional complexity as key persons may be family members, requiring integration with succession planning and estate planning to ensure smooth intergenerational transfer. Business structure also affects who qualifies as a key person - in companies, non-owner executives might qualify, while in partnerships typically only partners are covered. Tax treatment varies by structure: companies can claim deductions for revenue-purpose premiums against corporate tax, while partnerships flow deductions through to individual partners. The optimal insurance structure aligns with the business legal structure, ownership arrangements, succession plans, and tax position to achieve maximum protection and tax efficiency.