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Key Person Insurance

Protect your business should a key employee become seriously ill, or suffer a premature death.

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Business Protection

Key Person Insurance

Key Person or Key man Insurance, can be used to protect your business should a key employee become seriously ill, or suffer a premature death. It can be used to cover business loans and to protect against the loss of profits.

We provide free quotes and advice, with full market comparison.

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Company Owners - Financial Advice on Key Person Insurance

Business Protection

Key Person Insurance

Key Person Insurance is designed to provide financial protection to your business against the death, or a long-term illness of an employee, or director who is key to the success of the business.

A Term Insurance policy is the most appropriate solution, 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 against 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 10 years or set to match a business loan term. Your policy can include an option to extend the cover, free form fresh medical evidence, known as a continuation option. Whereas, to protect the value of the benefits against inflation, indexation of benefits and premiums can be considered.

Business Protection

Key Person - Policy Examples

1. Reducing Term – Business Loan Key Person Insurance

A standard reducing cover term life insurance policy can be used to protect a business loan and is the most cost-effective solution in this scenario. The premium remains fixed, but it’s cheaper than standard term life insurance, as it accounts for a reducing loan balance as the loan clears.

2. Level Term Life – Business Profits Key Person Insurance

A level term Key Person Insurance policy is a life insurance policy that exists for a fixed period of time at a fixed price. Inflation protection is optional through indexation of premiums and benefit levels.

3. Convertible Term – Business Profits Key Person Insurance

Convertible term is the same as a level term policy, except for the fact it includes an option to extend coverage beyond the original policy term, without the need to provide any fresh medical evidence.

Business Protection

Key Person Insurance - Taxation

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.

Note:
In summary, you can never claim premium tax relief and also avail of tax-free benefits.

Where the cover is to protect 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 you need to cover both losses of profits and protect business loans, then having two separate policies may make the most sense.

Premium Tax Relief:

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

  • Key person must own less than a 15% shareholding i.e., cannot be a proprietary director.
  • Key person insurance is intended for loss of profits and replacements costs, as opposed to cover against company loans.
  • The sole relationship is employer and employee.

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, corporation tax will apply.
  • 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.
  • The policy is a term assurance contract not exceeding retirement age.

Questions & Answers

Key Person Insurance - FAQ's

All you need to know in regards to your key person insurance.

  • 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.

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.

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.

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 a 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).

Key person insurance is essentially a term assurance policy taken out by a company on the life of the key-person. The company must first 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.

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.

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.

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.

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 the return of a completed key person insurance application form.

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

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OneQuote Financial Brokers,
11 James’s Terrace, Malahide,
Co. Dublin, K36 CV08

One Quote Financial Brokers is regulated by the Central Bank of Ireland no: 459006.
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