Arranging Best Value Keyman Insurance
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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.
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.
Keyman Insurance – Policy Examples
- 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.
- 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.
- 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.
- 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.
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
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.