Utilise Keyperson Insurance to Protect your Business

May 7, 2015 | Insurance Services, Retirement Planning, Trusts & Tax Planning


Do not Let Untimely Events Damage your Revenue

What is keyperson insurance?

Keyperson insurance, known in less enlightened times as keyman insurance, covers your business should a business critical person depart suddenly. This is particularly relevant to small and medium sized businesses that often operate on smaller budgets, although larger businesses do sometimes rely on one person to accomplish necessary tasks.

Like most insurance policies products do vary but generally keyperson insurance will cover an individual if:

  • They are diagnosed with a critical illness
  • They become disabled to the point they can no longer work
  • They die

The policy normally operates on a worldwide basis and different policies have different options for increasing and decreasing premiums, payment frequency, the term of the policy, and so on and so forth.

Keyperson insurance allows the business to carry on should somebody significant pass away. It covers the cost of recruitment and retraining. It allows the business to fulfil its promises to shareholders and customers / clients.

This all sounds good, but you have to watch out for how you use the money should you claim. The taxman is always waiting in the wings.

Keyperson Insurance and Tax

As a general rule the proceeds of a claim against a keyperson insurance policy will be taxable should they be used to bolster revenue. If they are used for a capital purpose, then the chances are they will not be taxed.

Generally speaking, tax will not be payable if:

  • Your keyperson policy is short term
  • The policy is for a loss of profit resulting from the loss of your employee (keyperson)
  • The relationship is between employee and employer

Where tax can become complicated is if the keyperson was a significant shareholder in the business. As the values of shares may rise, this may impact other taxable areas for both the business and the deceased’s family.

To offset this it might be worth holding the policy in trust, and introduce the funds via directors’ loans into the business.

Getting your Head around Keyperson Insurance

The tax element of keyperson insurance is where the problems begin. A few ‘wrong’ choices could see your business pay out significant amounts in tax. This is a problem for all businesses but could prove particularly costly for smaller and medium sized businesses, especially if tax has not been factored into the equation. Surprise tax bills are no fun.

The best keyperson policy strategy

In the first instance click here and complete the Call Back Service form. I am an award winning financial adviser, and I will contact you to discuss the needs of your business, and identify who should be covered under keyperson insurance.

Then together we can find the best policy for you. Click here.

FT Adviser
Zurich Insurance

For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]


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