Two distinct business structures use Life Cover: key person cover (the business holds a policy on a critical individual) and buy/sell cover (each partner holds cover funding the orderly transfer of ownership on death). Both are general-advice products through this brokerage; the legal documentation comes from your solicitor.
This answer covers the Life Cover structure only. Detailed key person mechanics (sum insured calculation methodologies, valuation models, CGT consequences, deductibility tests) sit in the dedicated Key Person FAQ corpus on this site.
Key person cover: the business is owner and beneficiary
Key person Life Cover protects the business against the financial shock of losing a critical person (often a founder, lead salesperson, specialist, or rainmaker). The structure:
- Policy owner: the business entity (company, trust, or partnership)
- Life insured: the key individual
- Premium payer: the business
- Beneficiary: the business
- Trigger: death or terminal illness of the key individual
The lump sum on claim helps the business:
- Recruit and train a replacement
- Fund operations during a revenue gap
- Service business debts that were dependent on the key person's revenue
- Reassure clients, suppliers, and lenders during the transition
Tax position
The tax treatment depends on whether the policy is taken out for a capital purpose (replacing the loss of an asset, like the key person's contribution to enterprise value) or a revenue purpose (replacing lost income or covering ongoing expenses).
- Capital purpose: premiums generally not deductible; benefits generally not assessable. Common for founder / executive key person cover.
- Revenue purpose: premiums may be deductible under ITAA 1997 s8-1; benefits assessable as ordinary income to the business.
The ATO sets out the test in Taxation Ruling TR 2009/2 (Income tax: insurance premiums incurred by an employer in relation to employees) and related rulings. Engage a registered tax agent before locking in the structure: it is fact-dependent.
Buy/sell cover: funds the transfer of ownership
Buy/sell Life Cover ensures that when one business partner dies, the surviving partners have the funds to buy out the deceased partner's share from their estate at a pre-agreed valuation. The structure works in concert with a buy/sell agreement drafted by the business's solicitor. The agreement specifies:
- The triggering events (death, total and permanent disability, critical illness)
- The valuation methodology for the business interest
- How insurance proceeds will be applied to the purchase
- Timeframes for settling the transfer
- Process for updating cover as the business value changes
Two common ownership structures
- Cross-owned policies: each partner owns a policy on each other partner's life. On a partner's death, the surviving partners receive the proceeds and use them to buy out the deceased's share.
- Buy/sell trust or self-owned policies: each partner owns a policy on their own life. On death, the proceeds pass to a buy/sell trust or directly under nomination, which then funds the buyout. This structure can simplify CGT treatment in some scenarios.
The ownership choice has material CGT and stamp duty implications. Various ATO rulings and determinations cover the relevant tests. Always engage both a registered tax agent and a solicitor before finalising the structure.
Life Cover has no anti-stacking, which makes layered business cover workable
Because Life Cover pays each policy's full sum insured independently (unlike Income Protection's APRA-capped 70% aggregate), a business owner can hold personal Life Cover plus business-purpose key person cover plus buy/sell cover, and each pays on death without offset. The combined cover funds the personal family need, the business operational shock, and the ownership transfer separately. Source: each panel insurer's Life Cover section in the PDS; no offset clause appears against "other Life policies".
Panel availability
All 9 panel insurers issue Life Cover that can be structured for business ownership. Several panel insurers also offer business-specific features:
- AIA Priority Protection PDS (Version 32, 9 November 2025): Guaranteed Future Insurability for Business Events (partnership change, key person valuation increase) up to stated caps.
- Zurich Wealth Protection PDS (1 November 2025): Future Insurability for Business option; business-event automatic increase up to $15M for the death benefit.
- TAL Accelerated Protection PDS (12 December 2024): Business-purpose ownership supported; "Trust" and "Company/business" ownership types listed.
- OnePath OneCare PDS (1 October 2025): Business-purpose ownership supported.
- ClearView ClearChoice PDS (13 May 2024, update 5 June 2025): Business-purpose ownership supported.
- NEOS Protection PDS (6 December 2024): Business-purpose ownership supported; $5M Life Cover cap may constrain very large key person sums.
- Encompass Protection PDS (26 September 2025): Business-purpose ownership supported; $7M cap may constrain very large sums.
- Acenda Insurance PDS (27 September 2025): Business Safeguard Option with cover up to $15M for business-event increases.
- Futura Protection PDS (1 October 2025): Business-purpose ownership supported; $15M cap.
Common considerations
- Hold key person and buy/sell cover outside super where possible. Super-held cover restricts beneficiary nomination to SIS dependants, which is incompatible with business-purpose payouts. Some structures still hold cover inside super (especially SMSF), but the technical conditions are restrictive.
- Update sum insured as the business value changes. A buy/sell amount that was right at startup may be far too low after a decade of growth. Future Insurability Benefit on most panel PDSs allows scheduled increases without re-underwriting, up to caps.
- Keep the buy/sell agreement and the policy in sync. If the agreement says $2M and the cover is $1.5M, the funding falls short.
- Document the deductibility and CGT analysis at outset. The position can be queried by the ATO years later.
- Trauma and TPD bolt-ons cover the disability triggers that the buy/sell agreement also typically addresses; the same structural choices apply.
For the full key person FAQ corpus (sum insured calculation methodologies, deductibility worked examples, CGT-impact case studies), see the dedicated Key Person FAQ section on this site. A licensed adviser working under general advice can model the panel quotes against the business structure; the solicitor drafts the agreement.