Premiums vary based on the key person's age, health, the level of cover, and the payout structure chosen. Because each policy is tailored to your business, the best way to understand costs is to speak with a broker who can compare options from multiple insurers.
What is key person insurance and does my NZ Business need it?
Running a business in New Zealand means relying on people — often just a handful of individuals who make the whole thing work. So what happens if one of them suddenly can't?
Whether it's illness, a serious accident, or death, the absence of a key team member can have a devastating impact on revenue, operations, and confidence. Key person insurance exists to protect your business in exactly this scenario.
What is key person insurance?
Key person insurance (sometimes called key man insurance) is a business insurance policy that pays out if a critical member of your team is unable to work due to serious illness, injury, or death.
Unlike personal life insurance — which pays benefits to the individual or their family — key person insurance pays out to the business. The business is both the policy owner and the beneficiary.
The idea is simple: if your business would suffer financially without a particular person, that person is a key person, and their absence is a risk worth insuring against.
Who counts as a 'key person'?
A key person is anyone whose skills, relationships, or knowledge are critical to your business's income or continuity. Common examples in New Zealand businesses include:
- Business owners and directors
- Shareholders who are actively involved in operations
- Top-performing salespeople who hold key client relationships
- Specialist technicians or tradespeople with rare skills
- Senior managers who oversee large teams or contracts
If you can honestly say, 'I don't know how we'd cope if this person couldn't work for six months,' that's your key person.
Does my NZ business actually need it?
If your business would take a significant financial hit without a specific person, the honest answer is yes. Key person insurance is especially important for:
- Small to medium businesses where one or two people drive most of the revenue
- Businesses with specialist skills that are hard to replace quickly
- Partnerships where a 50/50 owner is also an operator
- Businesses with outstanding loans or obligations that rely on key person income
Larger organisations with deep teams may have more redundancy built in. But for most Kiwi SMEs, the departure of one key person — even temporarily — can threaten the whole operation.
Key person insurance options
selected option
- What’s covered?
- What’s not covered?
How does key person insurance pay out?
There are two main payout structures, you can choose one option or combine both for more comprehensive protection.
What can the payout be used for?
There's no restriction on how key person insurance payouts are used — it's paid to the business to deploy as needed. Common uses include:
- Hiring a contractor or temporary replacement
- Covering lost revenue while the business stabilises
- Paying for recruitment and training of a permanent replacement
- Servicing debt or meeting financial obligations
- Reassuring clients, suppliers, and investors that the business remains stable
A real-world example
Sarah co-owns a Wellington IT services company with her business partner, James. James handles all the technical delivery for their biggest client — a contract worth $400,000 a year. When James is diagnosed with a heart condition requiring six months of recovery, Sarah is able to call on their key person insurance to fund a specialist contractor to keep the client relationship intact. Without it, they may have lost the contract entirely.
This case study is fictional and does not represent any real-life individuals, events, or organisations.
Why Marsh?
Why should you choose Marsh to arrange your insurance solutions?
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Frequently asked questions
A key person can be anyone who is pivotal to your business. For example, it could be the owners, shareholders, a star salesperson or senior team members.
When choosing your key person insurance policy, you can opt for monthly payments, a lump sum payment, or opt for both.
Monthly payouts mean you could receive a monthly sum for up to two years (up to agreed policy limits) while a key person is sick or injured. This is typically chosen to cover incidents where the key person is expected to return to work and can act as a financial cushion for the business while their key team member is away.
The lump sum payment option is often chosen to cover situations where the key person will not be able to return to work.
Our expert brokers can help you choose the right option for your business.
Key person insurance payouts could be put towards the cost of bringing in a replacement, or to cover some of the revenue that is lost as a result of the key person being away from the business.
Key person insurance articles and resources
Marsh Limited (NZBN 9429040918792)(“Marsh”) arranges the insurance and is not the insurer. This page contains general information and does not take into account your individual objectives, financial situation or needs. For full details of the terms, conditions and limitations of the covers, refer to the specific policy wordings and/or Product Disclosure Statements available from Marsh on request. This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.
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