The monthly payment option can provide ongoing payouts during a key person's absence due to illness or injury, up to policy limits. Stand-down periods apply — for example, a six-month stand-down for certain conditions before monthly payments commence.
Key person insurance vs life insurance: what's the difference?
If you're a business owner in New Zealand, you've probably got some form of personal life insurance in place. So when someone mentions key person insurance, it's natural to wonder: isn't that the same thing?
It isn't — and the difference matters. Understanding which is which could be the difference between your family being protected and your business being protected. Ideally, you consider both.
The short answer
Personal life insurance protects you and your family. Key person insurance protects your business.
Both pay out on death or serious illness. But who receives the money, why it exists, and how it's structured are fundamentally different.
How personal life insurance works
Personal life insurance is a policy held by an individual. If they die or become critically ill, the payout goes to their nominated beneficiaries — typically a spouse, family members, or dependants.
The purpose is to replace personal income, pay off a mortgage, and ensure the family is financially secure.
The individual owns the policy. The individual benefits. It has nothing to do with their employer or business.
How key person insurance works
Key person insurance is a policy held by a business. The business pays the premiums, owns the policy, and receives the payout if a key person dies, becomes seriously ill, or is permanently unable to work.
The purpose is to protect the business from financial disruption caused by that person's absence — not to benefit the key person or their family.
The key person is the insured life, but they receive no direct financial benefit from the policy.
Side-by-side comparison
| Personal life insurance | Key person insurance | |
| Who owns the policy? | The individual | The business |
| Who pays premiums? | The individual | The business |
| Who receives the payout? | Family / beneficiaries | The business |
| What's protected? | Personal income & family | Business revenue & continuity |
| Who is insured? | The policyholder | A key team member |
| Does the insured person benefit? | Yes | No — the business benefits |
Can I have both?
Absolutely — and for most business owners, both are worth considering.
Your personal life insurance protects your family if something happens to you. Your business's key person insurance protects your business. These are two separate needs, and one policy doesn't substitute for the other.
Many business owners discover they have one but not the other. The question worth asking is: if something happened to you tomorrow, would both your family and your business be financially protected?
What about shareholder protection insurance?
There's a third type of insurance worth knowing about if you own shares in a business: shareholder protection insurance.
Shareholder protection pays out to surviving shareholders (or the business) to fund the purchase of a deceased or ill shareholder's shares. Without it, a shareholder's shares may pass to their estate — potentially leaving the remaining business owners in partnership with someone who has no involvement in or knowledge of the business.
Key person insurance, personal life insurance, and shareholder protection serve different purposes and are often structured together for comprehensive protection.
Getting the right advice
The difference between key person insurance and personal life insurance may seem straightforward — but structuring the right combination of cover for your specific business is where specialist advice adds real value.
Marsh brokers work with New Zealand businesses of all sizes to help protect business owners, not just technically insured.
Frequently asked questions
The tax treatment of key person insurance in New Zealand depends on the purpose of the cover and how the policy is structured. We recommend speaking with a tax adviser or your accountant to understand the implications for your specific situation. A Marsh broker can work alongside your advisers to ensure the policy is structured appropriately.
Cover levels are usually calculated based on the key person's contribution to business revenue, the cost of replacement, and any outstanding business debt. A broker can help you model this against your specific business.
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.
LCPA 26/NZ133