Key Person Insurance

Key Person Insurance otherwise known as Keyman Insurance, is designed to protect your business should a key employee become seriously ill, or suffer a premature death. The company pays the premiums and receives the benefits and under certain conditions, can claim corporation tax relief on the premiums.

key-man-insurance Key Person Insurance play-video
Key Person Insurance top-tips
Key Person Insurance ic-mp


Key Person Insurance top-tips

  1. The tax implications of both the premiums and benefits are dependent on how the cover is set up and whether it covers both revenue loss and associated loans to the company, which is why these policies should be separated.
  2. You should consult your company tax and legal advisors, when considering taking out key-person insurance and then come to OneQuote.ie, to ensure both convenience and best value!

 

Arranging Best Value Keyman Insurance

We Make It Simple

At OneQuote.ie, we are committed to making Key Person Insurance simple and more affordable.

Through full market comparison and our online broker discount, you are guaranteed the right Keyman Insurance, at the best possible fixed price on the Irish market.

When we run your Keyman Insurance quotes, we provide not only the best price, but also outline the merits of the recommended insurer and the recommended product. Our qualified independent advisors, are also at hand to answer any questions and to make sure you choose the cover basis, that best suits your specific requirements.

Policy Considerations

What to consider

Keyman Insurance is designed to provide financial protection to a business against the death, or long term absence of an employee, or director who is key to the success of the business. A guaranteed Term Insurance policy is most appropriate, as it offers a set price with the option to include serious illness cover, alongside the life insurance cover.

In deciding on the cover amount, you can protect loss of profits attributable to the key person, as well as any loans to the business guaranteed by the key person.

The term of the policy should be a minimum of 5 and generally 10 years. It can include an option to extend the cover, free form fresh medical evidence, known as a continuation option. Also, to protect the value of the benefits against inflation, indexation of benefits and premiums, should be considered.

Policy Examples

Keyman Insurance – Policy Examples

  1. Convertible Term Life Insurance – Keyman Insurance
    A level term keyman insurance policy, is a life insurance policy that exists for a fixed period of time at a fixed price. Convertible term is the same as a level term policy, except for the fact it includes an option to extend cover beyond the original policy term and without the need to provide any fresh medical evidence. Including a conversion option is very valuable, as it keeps the company’s options open, should they wish to extend cover in the future.
  2. Convertible term life & serious illness – Keyman Insurance
    Should you decide on a convertible term life insurance policy as described above, you should also then consider including Serious Illness cover on an advance payment basis. This is known as “accelerated” serious illness cover. Including serious illness cover protects the business in the event of the serious illness of the key person, as well as their premature death.

Keyman Insurance – Tax Treatment

When looking at the tax treatment of Keyman insurance, were the company both pay the premiums and receive the benefits, we need to look at (a) corporation tax relief on premiums and (b) corporation tax charged on benefit pay-out.

Premium Tax Relief:

Tax relief can only be claimed on keyman insurance premiums, where all 4 of the following rules are meet and the pupose of cover is not to repay loans, or other outstanding debts.

  1. Key person must own less than a 15% shareholding i.e. cannot be a proprietary director.
  2. Key person insurance is intended for loss of profits and replacements costs, as opposed to cover against company loans.
  3. The sole relationship is employer and employee.
  4. The policy is a term assurance contract not exceeding retirement age.

Tax Treatment of Benefits:

Whether tax is charged on a benefit pay-out to the company, is dependent on the intention of the cover:

  • Where the keyman insurance is intended specifically to cover revenue loss i.e. loss of profits & replacement costs, then it will be taxed currently at 12.5%.
  • Where the purpose of the keyman insurance is to a cover capital loss, i.e. loans to the company, guaranteed by the key person, then no tax would be chargeable.

Note:

In summary, you can never claim premium tax relief and also avail of tax free benefits. Where the cover is to proctect loans then tax free benefits can apply, but not premium tax relief. Where the cover is to protect loss of profits premium tax relief may apply, but not tax free benefits. Therefore, if your need to cover both loss of profits and protect business loans, then having 2 separate policies may make most sense.

Other Ways of Protecting Key People

Other Business Protection Options

Shareholder Protection
In a small business scenario, often the Key People are also the shareholders, or business partners. Another type of insurance cover exists specifically to protect shareholders and their families, which is known as Shareholder Protection insurance and it is designed to allow the remaining shareholders, or business partners buy back shares in the event of the death of a key person, who is a business shareholder.

When we talk about Shareholder Protection for limited companies, it is also referred to as Co Directors Insurance and with Partnerships, simply known as Partnership Insurance.

Executive Income Protection
An executive income protection plan, provides a cost effective way of protecting a key employee’s income during long-term absence due to illness or injury. It allows an employer to continue paying them a salary, for as long as they are unable to work, without imposing extra financial burdens on the business at a time when they are already trying to cover the key employee’s absence.

Executive Income Protection is owned by the employer and taken out on behalf of employees, who must work more than 16 hours a week. The premiums are paid by the employer and these premiums should qualify as a tax deductible expense for the business.

This can make it a very efficient way to protect employees’ salaries. If the employee is unable to work due to illness or injury, then an income protection benefit will be paid to the employer, who could use it to continue to pay the employee a salary. Payments continue either until the employee is well enough to return to work, or their policy ends. To obtain a best value dicounted quote enquire now.

Keyman Insurance – Frequently Asked Questions

Who are your key people?
  • They are the ones who steer, create and drive your business.
  • The people without whom your business would lose sales and profits, or without whom even the basic viability of your business would be shaken.
  • Look at the directors, partners, owners and beyond.
  • Consider the roles of senior managers in sales, technical development and operations – the roles will change in every business. but the candidates are sure to jump out at you.
  • Insuring these people will provide the extra cash needed to take on temporary staff or recruit and train a replacement.
Why consider Key Person Insurance?

Key person insurance is worth considering if your business relies on an individual, or individuals – whether that is to design products and systems, to generate new business, or if they have specialist skills that are crucial to the success of the business.

The loss of a key person could have a significant impact on your business and key person insurance is designed to provide a cash lump sum to cover potential lost revenue plus the costs of sourcing and training a replacement member of staff. It can also be used to cover any business loans guaranteed by that Key Person.

How does Key Person Insurance work?

Key person insurance is a type of life insurance policy that is taken out by a business on the life of a key employee. It is also possible for the policy to pay out in the event of the key person being diagnosed with a specified serious illness, such as cancer or heart attack.

Should the key person die, or suffer a serious illness, the policy would pay out a lump sum to the business and the business can use these funds to cover the costs associated with losing the key employee, whilst they recruit a replacement.

What does key Person Insurance cover?

The loss of a key employee could have a significant impact on the company’s income or future profit and it could be extremely expensive to find a replacement for this employee (recruitment and training costs).

Key Person insurance is designed to cover loss of income / profit plus the cost of sourcing a replacement employee. It can also be used to cover any loans to the company, made or guaranteed by the key person.

Key person cover can be taken out at any time and will pay out a lump sum in the event of the key person’s death, or being diagnosed with a specified serious illness (if serious illness cover is added to the policy)

How do I set up Key Person Insurance?

Key person insurance is essentially a term assurance policy taken out by a company on the life of the key-person. The company must firstly record the need for this cover at a board resolution and then complete a life insurance application form. The application form should have the company as the owner and payee and the key person as the life assured.

How much cover should I put in place?

The cover amount should be based on the anticipated loss of profits, as a result of the loss of the Key-person, as well as the costs associated with the recruiting and bedding in of a successor. It can also include an amount to cover any personal loans to the company, or loans guaranteed by that key person.

What policy term is most appropriate?

Typically, companies opt for a policy term of 10 years and include a continuation option, if they want the option to extend the cover in the future and without the need for fresh medical information at the time.

Should I include serious illness insurance?

Of course this is an option and its worthwhile comparing quotes. Should the company decide to include serious illness protection, we would recommend they do so on an accelerated basis (any serious illness pay-out then acts as an advance payment of the life cover amount) so as to include the cover, while minimising the associated cost.

You can also choose to have a lesser Serious Illness cover amount than the life cover amount, as the Key Person may well return to work after some time off during a serious illness.

How long does it take to set up?

It depends on the age and health of the life assured, as well as the level of cover required, however it normally takes anywhere between 2 and 3 working weeks, from return of a completed key person insurance application form.

How do I ensure best value for money?

We compare all leading key person insurance providers in Ireland, to ensure the best cover at the best market price. We provide extra discount on 10 year term policies, and our “best value guarantee” means we refuse to be beaten on price!

Testimonials Insurers Advantage Blog