For a sole-founder business, the calculation is more nuanced because the founder's death or disability typically means the business cannot continue without significant restructuring or wind-up; the sum insured reflects orderly closure or sale value, not just revenue replacement. Five common inputs drive the figure.
The panel is AIA, Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Acenda, and Futura. All 9 insurers will underwrite Key Person cover on a sole founder where the business case for the cover is supported by financial evidence.
Five common calculation inputs
| Input | What it measures | Typical multiplier or rule |
|---|---|---|
| Revenue replacement | Founder's salary or drawings, scaled for orderly wind-up or sale | 3 to 5 years of annual drawings |
| Goodwill replacement | What a willing buyer would pay if the founder remained operational; goodwill typically evaporates without the founder | Industry-specific valuation multiple of EBITDA, revenue, or net profit |
| Debt protection | Outstanding business loans, equipment finance, lease commitments, and personal guarantees the founder has signed | Sum of outstanding balances plus expected drawdowns |
| Employee redundancy | Salaries and accrued entitlements payable on closure (long service leave, annual leave, redundancy pay where applicable) | Sum of full-time-equivalent staff redundancy entitlements |
| Tax and CGT exposure | Any forced disposal of business assets triggers CGT; closing-down costs include accountant and legal fees | Estimated CGT on goodwill and asset disposal, plus closing-down costs |
Add the five inputs to derive the total sum insured. Review annually as the business grows or contracts.
Worked example for an illustrative sole-founder consultancy
An illustrative sole-founder consultancy with $400,000 annual drawings, $200,000 EBITDA, $150,000 outstanding business loan, 3 employees, and minimal hard assets might calculate:
- Revenue replacement: $400,000 x 4 years = $1,600,000
- Goodwill replacement: $200,000 EBITDA x 2 = $400,000 (industry-typical for consulting goodwill)
- Debt protection: $150,000 outstanding loan plus $50,000 facility headroom = $200,000
- Employee redundancy: 3 staff x $30,000 average redundancy and accrued entitlements = $90,000
- Tax and CGT exposure: estimated $50,000 on goodwill realisation and closing-down costs
Total indicative sum insured: $2,340,000
This is illustrative; the actual figure for any specific business depends on the business's accounts, the founder's personal financial position, and the intended use of the proceeds. An accountant familiar with business valuation should validate the inputs.
Ownership structure for sole-founder cover
For a sole-founder business, the policy is typically held in one of two structures:
- Business-owned: the company (where the founder operates through a Pty Ltd) or the trust (family or trading trust) is the policy owner and beneficiary. The business uses the proceeds for orderly wind-up, employee redundancy, debt repayment, and asset realisation.
- Founder-owned with estate beneficiary: the founder personally owns the policy with their estate (legal personal representative) as the beneficiary, and the will directs the executor to apply the proceeds to the business obligations before distributing residual to family.
The choice between these structures depends on:
- The legal entity of the business (sole trader, Pty Ltd, trust)
- The founder's succession planning (sale to a third party, transfer to a family member, planned wind-up)
- The tax position (capital vs revenue purpose per ATO TR 2009/2)
- The presence of buy/sell or partnership agreements (rare in sole-founder structures but possible if the founder has minority partners)
Sole trader limitation
For a true sole trader (no separate legal entity), the business and the founder are the same legal person. The business cannot own the policy because the business has no separate legal personhood. The policy must be founder-owned, typically with the family or estate as beneficiary, and the proceeds used per the will or beneficiary nomination.
For sole traders, the analysis often resolves to personal Life Cover with the family as beneficiary rather than business-owned Key Person cover. Personal income protection and personal Life Cover, properly structured, serve the family's needs better than a business-purpose policy on a non-separate entity.
Where each panel insurer underwrites sole-founder cover
All 9 panel insurers underwrite sole-founder cover with sufficient financial evidence:
- AIA Priority Protection PDS (Version 32, 9 November 2025), Section 8.12 Business Safeguard Forward Underwriting: evidence requirements cover sole-founder structures.
- Zurich Wealth Protection PDS (1 November 2025): business cover events support sole-founder structuring.
- TAL Accelerated Protection PDS (12 December 2024): Business Insurance Option supports sole-founder where business-event evidence is provided.
- OnePath OneCare PDS (1 October 2025): Future Insurability business events support sole-founder.
- ClearView ClearChoice PDS (13 May 2024, update effective 5 June 2025): standard underwriting accepts sole-founder applications.
- NEOS Protection PDS (6 December 2024): Future Increase Benefit business events support sole-founder.
- Encompass Protection PDS (26 September 2025): business-event triggers include key person and asset protection.
- Acenda Insurance PDS (27 September 2025), Business Safeguard Option at PDS pages 56-58: sole-founder cover supported with maximum Life Cover $15 million under Business Safeguard.
- Futura Protection PDS (1 October 2025): Future Increase Benefit supports sole-founder.
Documentation typically required at application
Sole-founder cover at higher sum-insured bands requires more documentation than personal cover:
- Audited or accountant-prepared financial accounts for the last 2 to 3 years
- Business Activity Statements (BAS) for the current and prior years
- Tax returns of the founder and the business entity
- A key-person valuation report from the founder's accountant or business valuer, addressing the five inputs above
- Business structure documentation (ASIC extracts for a Pty Ltd, trust deed for a trust)
- Bank loan documents where loan protection is part of the cover purpose
- Job description and detail of the founder's specific duties, qualifications, and client relationships
Higher sum-insured amounts trigger more extensive underwriting; the insurer may require additional financial evidence beyond the standard pack.
Common considerations
- Review the sum insured annually. A sole-founder business growing from $200,000 EBITDA to $400,000 EBITDA may need cover doubled within 2 to 3 years.
- Consider whether personal Life Cover (with the family as beneficiary) is more appropriate than business-owned cover for a true sole-trader structure.
- Coordinate the cover with the founder's will, succession plan, and any buy/sell or partnership agreements.
- Engage the founder's accountant to validate the five inputs and to document the capital-purpose characterisation under ATO TR 2009/2.
- Engage a solicitor for the will and any succession documentation; the insurance broker coordinates the cover, not the legal documentation.
- General advice only. The right structure for a specific sole-founder business depends on the legal entity, succession plan, and tax position.
Regulator anchor
- ATO TR 2009/2 (capital vs revenue purpose framework)
- ITAA 1997 s8-1 (deductibility), s118-37(1)(a) (CGT exemption)
- Life Insurance Act 1995 (Cth) and Insurance Contracts Act 1984 (Cth)
- ATO Self-Managed Super Funds materials where SMSF ownership is contemplated
- ATO Small Business CGT concessions guidance (ITAA 1997 Division 152) for closure or sale scenarios