Key person insurance protects against the potential losses a business could incur if a key person were to die or be diagnosed with a serious illness.
Establishing who is a key person in an organisation depends on the business and how it is structured. Examples could include:
In the event of a claim, the proceeds are paid directly to the business, helping them to protect profits or reduce debts so they can continue to trade.
We aim to build long-term relationships between our clients and our independent financial advisers. We’ll take time to understand your business’s needs and search the market to tailor a key person insurance plan that suits you at the best premium.
If a key person in your business was to die or be diagnosed with a serious illness, key person insurance can help by:
The cover is taken out over a specified term, for example five or ten years, depending on how long the cover is required for. However, the cover usually won’t have a cash-in value, so if you stop paying your premiums the cover will cease.
The premium for the cover will depend on how old the person is, their health, the amount of cover required, and how long the cover is needed for.
The benefit from a key person insurance plan is usually a tax-free lump sum, paid to the business in the event of a claim.
Death In service insurance pays out a tax-free lump sum to an employee’s beneficiary in the event of their death.
Group personal accident insurance provides an instant tax-free cash payment in the event of death, disablement, or loss of hearing, sight, or speech following an accident.
Shareholder protection insurance provides surviving shareholders with the funds to purchase the shares from a third-party.
A key person is anyone within the company whose absence would make a critical difference to its continued success or survival. This is often the owner or directors but could also include key employees who have a pivotal role within the firm.
Not for the individual who is covered. This is because the policy is not benefiting the individual but the business who has put the policy in place. The premiums are usually a tax-deductible expense that can be put against the corporation tax bill. There is no requirement for the individual ‘key person’ to be taxed on this insurance as they will not receive any benefits.
Any business can take out key person insurance. It is effectively a life insurance product that can be taken out by a business and therefore can be purchased by every company from single owner operated firms, micro-businesses, small, medium, and large national and international firms.
Any pay-out from key person insurance is received by the business, not the individual covered. The pay-out benefits the business ‘wholly and exclusively’ and is therefore a tax-deductible expense that can be put against the corporation tax bill. There is no requirement for the individual ‘key person’ to be taxed on this insurance as they will not receive any benefits.
If you have a key person policy and the named individual leaves the business the plan will be cancelled. This is because the policy is set up with medical information on the named individual and cannot be transferred. A new policy can be set up, if required, for any new individual.
The key person insurance policy is taken out by the business and is therefore ‘owned’ by the business. The business also benefits from any pay-out.
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