Arranging Best Value Keyman Insurance
We Make It Simple
Here at One Quote Financial Brokers 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.
What to consider
Keyman 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.
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 the 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.
Keyman Insurance – Policy Examples
- Reducing Term – Business Loan Keyman 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 its being paid off.
- Level Term Life – Business Profits 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 – Business Profits Keyman 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 and without the need to provide any fresh medical evidence.
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 key man insurance premiums, where all 4 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.
- 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, corpoartion 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.
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 2 separate policies may make the 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 discounted quote enquire now.