Many people who settle in the Algarve do not leave their working lives entirely behind. They have moved their home, and often their tax residence, to Portugal — but they still own a company in the country they came from, sit on its board, or remain the person the business quietly depends on. The move changes where they live; it does not change how much that business relies on one or two individuals.
Key person insurance exists for the risk that one of those individuals is suddenly lost. When the owner also lives in a different country from the company, a straightforward protection becomes a cross-border arrangement, and the details of who holds the policy, who receives the payout and how each side is taxed decide whether it works. This article explains what key person cover protects, and what changes when the person and the business are in different countries.
What key person insurance actually protects
Key person (or “key man”) insurance is taken out by a business on the life — and often the disability — of an individual it cannot easily do without. If that person dies or is incapacitated, the policy pays a capital sum to the company, not to the family. The point is to give the business the means to survive the loss:
- Replacing lost revenue in the period when a founder's relationships, expertise or reputation are no longer driving the business.
- Funding the transition — recruiting, training or buying in the skills the person provided, which rarely happens quickly or cheaply.
- Repaying debts they guaranteed. Where an owner personally guaranteed loans or credit lines, their loss can trigger repayment the company is not positioned to meet.
- Stabilising ownership — giving the surviving owners the funds and the time to reorganise rather than sell in a hurry.
The person insured is usually a founder, a majority owner, a technical lead or the holder of the key client relationships — anyone whose sudden absence would materially damage the business. For an owner-managed company, that is very often the owner themselves.
Key person is not D&O — and not the same as life cover
It is easy to confuse key person cover with two things it is not. It is not directors' and officers' (D&O) insurance, which protects a director personally against claims that their decisions caused loss. And it is not personal life insurance, which pays the family. Key person cover protects the company's financial continuity, with the company as both policyholder and beneficiary.
D&O defends the director against a claim; key person keeps the business alive without them. An owner of a company abroad frequently needs both — they answer different questions, and neither substitutes for the other.
The distinction matters when structuring cover for someone who runs or owns a business remotely. Sitting on a board abroad while resident in Portugal creates personal liability exposure, which we explore in our article on D&O exposure for non-executive directors abroad. Key person insurance sits alongside that, protecting the enterprise rather than the individual.
The cross-border complication
When the insured person lives in Portugal and the business is somewhere else, the mechanics of a key person policy have to be worked out across two systems rather than one. Three questions do most of the work:
Who is the policyholder and beneficiary?
The natural answer is the operating company — the business that suffers the loss should hold the policy and receive the payout. But where the ownership runs through a holding company, an SPV or a Portuguese structure, the right entity is not always obvious, and getting it wrong can put the money in the wrong place or create an unintended tax event. This has to be decided deliberately, in light of how the group is actually owned.
Where is the insured person tax-resident?
An individual who has become tax-resident in Portugal is assessed here on their worldwide position, while the company remains taxable where it operates. That split affects how the premium is treated, how the payout is characterised, and whether any personal tax consequence arises for the insured. The insured person's residence is a fact that shapes the whole structure, not a detail to bolt on afterwards.
How is the premium and payout taxed in each country?
Whether the premium is a deductible business expense, and whether the payout is received tax-free or as taxable income, depends on the rules of the country where the company sits — and can interact with Portugal's treatment of the resident individual. The aim is a structure where the cover does what it is meant to on both sides of the border, rather than one that works in one country and unravels in the other.
None of this is a reason to leave the risk uninsured; it is a reason to structure the cover with the cross-border picture in view from the start. The same care that goes into insuring a property portfolio across two jurisdictions applies here: the exposure is straightforward, but the arrangement has to respect two sets of rules at once.
Sizing the cover
A key person sum is not a round number picked for comfort. It is built from what the business would actually need to withstand the loss: the revenue at risk while the person is replaced, the cost of recruiting and bedding in a successor, any guaranteed debt that would fall due, and the time the company would realistically take to recover. Set it too low and the payout softens the blow without solving it; set it arbitrarily high and the premium is wasted. The figure should be reviewed as the business grows or the person's role changes, the same discipline that keeps any insured value from drifting out of date.
Arranging cover in practice
To structure key person cover for an owner living in Portugal with a business abroad, a broker needs the shape of the picture: the company and where it operates, the ownership structure, the individual to be insured and their role, the revenue and any guaranteed debt exposed to their loss, and the person's tax residence. From there the policyholder and beneficiary can be set correctly, the sum insured built from the real exposure, and the arrangement coordinated so it holds up in both countries.
Protecting a business you run from Portugal
If you live in the Algarve and still own or depend on a business abroad, Adler & Rochefort can help structure key person cover that sits correctly across both countries — getting the policyholder, beneficiary and sum insured right for how your business is actually owned. We work in English and coordinate the cross-border detail before advising.
This article is provided for general information and does not constitute personalised advice or tax advice; the correct structure depends on the facts of the business, the ownership and the countries involved, and should be confirmed with appropriate tax and legal input. Adler & Rochefort is a commercial brand of Ownizo Unipessoal LDA, mediador registado na ASF n.º 425591790/3.