Key Person cover is held on the life of a specific individual and owned by the business, so a role change or departure does not end the cover automatically; the business reviews ownership, premium continuation, and the sum insured to match the new risk profile. Outstanding loans, buy/sell triggers, and tax purpose all affect the right answer.
The panel is AIA, Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Acenda, and Futura. All 9 insurers issue policies in the name of the policy owner (the business) on the life insured (the key person); the policy continues until cancelled, lapsed, or claimed.
Role change inside the same business
When a key person stays with the business but moves to a different role:
- Reduced criticality (founder transitions to non-executive chair, sales lead moves to advisory): the cover may be reduced to match the diminished revenue contribution. Some insurers allow stepped reductions without re-underwriting; others require notification.
- Increased criticality (a senior manager promoted to CEO): the cover may be increased via the Future Insurability or Business Safeguard mechanism without re-underwriting, where the relevant business-event trigger is satisfied.
- Materially different duties (an accountant moves into a hazardous operational role): the insurer may require notification under the duty to take reasonable care, and the occupation class may change at next anniversary.
- Same role, different title: no change required; titles are not the underwriting variable.
Departure (resignation, retirement, dismissal, redundancy)
When the key person leaves the business entirely, the business has several options:
| Option | When it suits | Tax and admin notes |
|---|---|---|
| Surrender the policy | The departing person took no equity and no loan guarantees; no ongoing risk | Stop premiums; any premium refund is per the PDS |
| Transfer ownership to the departing individual | The departing person wants personal cover and the underwriting permits assignment | Stamp duty and tax considerations apply on transfer; insurer consent required |
| Keep the policy in force (business-owned) | The departing person remains a guarantor on a loan or has ongoing buy/sell triggers | Premium continues; document the residual risk |
| Use the policy to fund a buy/sell payout | The departing person is exiting equity under a buy/sell agreement | Apply the proceeds per the buy/sell terms; document the purpose |
| Convert to cover on a replacement key person | A new hire fills the same role and assumes the same criticality | Re-underwriting required; the new person must apply afresh; the old policy is cancelled |
Most buy/sell agreements anticipate cover cancellation at the same time the equity buyout completes, because the departing person has no ongoing equity interest.
Where each panel insurer documents ownership changes
- AIA Priority Protection PDS (Version 32, 9 November 2025), Section 8 (Premium and underwriting) and Section 10 (General Terms): ownership changes require insurer consent.
- Zurich Wealth Protection PDS (1 November 2025): standard assignment provisions in the General Terms section.
- TAL Accelerated Protection PDS (12 December 2024): assignment subject to TAL approval; standard administrative process.
- OnePath OneCare PDS (1 October 2025): policy assignment provisions in the OneCare general-terms section.
- ClearView ClearChoice PDS (13 May 2024, update effective 5 June 2025): assignment provisions in the policy administration section.
- NEOS Protection PDS (6 December 2024): standard assignment provisions.
- Encompass Protection PDS (26 September 2025): standard assignment provisions.
- Acenda Insurance PDS (27 September 2025): policy assignment governed by the General Terms section.
- Futura Protection PDS (1 October 2025): standard assignment provisions.
The insurer's approach to assignment is typically administrative; the insurance contract is between the insurer and the policy owner, and the life insured does not need to consent to an ownership change.
Outstanding loan guarantees at departure
Where the departing key person guaranteed a business loan, the cover should not be surrendered until the guarantee is released by the lender. Lenders typically require:
- Written notification of the change
- Replacement guarantor or refinancing arrangements
- Confirmation that the insurance cover continues until the guarantee is removed from the loan documents
Surrendering cover while the guarantee remains in force exposes the departing individual's estate to the loan in the event of their later death. This is the most common practical error in Key Person cancellations.
Tax consequences of ownership transfers
Transferring policy ownership from the business to the departing individual (or vice versa) can trigger:
- Stamp duty in some states on the transfer (life insurance policies are generally exempt or have nominal duty, but check state-specific rules)
- Fringe Benefits Tax (FBTAA) if the transfer is in the nature of a benefit to the departing employee
- CGT implications under ITAA 1997 s118-37 if the original-beneficial-owner test is broken by the transfer
- Loss of deductibility for any future premiums paid by the new owner
Document the transfer clearly and obtain accountant advice before assigning the policy.
Common considerations
- Review cover at each material employment change, not just at the annual review.
- Where the departing person has equity, coordinate the cover decision with the buy/sell agreement provisions.
- Where the departing person has a loan guarantee, do not cancel cover until the lender releases the guarantee.
- Where the departing person is replaced by a new key person, treat the situation as a new-person application; the replacement must apply afresh with their own underwriting.
- The Future Insurability or Business Safeguard mechanism may be available to convert cover to a new key person without medical evidence, where the original cover was structured for that purpose. Confirm with the insurer.
- General advice only. Engage your broker, accountant, and solicitor for any material ownership or transfer decision.
Regulator anchor
- Insurance Contracts Act 1984 (Cth) governs the contract, with s20B (duty to take reasonable care) attaching to any new policy or material change
- Life Insurance Act 1995 (Cth) for the legal character of the assignment
- ATO TR 2009/2 (capital vs revenue purpose framework)
- Fringe Benefits Tax Assessment Act 1986 (Cth) for transfers in the nature of employee benefits
- State-specific stamp duty legislation for policy assignment duty