Key Person Insurance is crucial to help keep a business running if a key employee becomes critically ill or dies. Humphries Independent Financial Advisors, one of our trusted business partners have written a useful overview for LKA clients explaining the key facts about Key Person Insurance.
All companies have different levels of staff whose individual skill, knowledge, experience or leadership contributes to the continued financial success of the business.
Companies have several different ways they can choose to provide protection to staff members. This article will focus specifically on Key Person Insurance.
What is Key Person Insurance?
Key Person is a type of life insurance. It provides a death benefit to a business if its owner or other significant employee passes away. The loss of someone who is critical to the day-to-day operations can be hugely detrimental to the overall performance of the business
To replace someone who is crucial to the running of the business can be costly. Key Person can be used to benefit the company in any of the following ways
Pay for recruitment
Fund the training for a new colleague
Fund overtime for colleagues dealing with additional responsibilities
Benefits from policy can be put directly into the business to minimise revenue lost due to the loss of that Key Person
The policy is owned by the business so they have the ability to utilise any benefit received from the policy in a way that would provide maximum support for the business.
What are the benefits of the Key Person Insurance?
Provides protection for the business
Safeguards against loss of profits if an employee becomes terminally or critically ill
Helps the business keep trading
Protects profitability and viability of the business
Protects the owners against the impact of unforeseen circumstances
Corporation Tax – If certain criteria is met, the company can treat the premiums it pays as allowable business expenses, deductible from the company’s profits (potentially reducing its Corporation Tax Liability every year it has a policy)
Benefit in Kind Implications – Key person cover is not classed as a benefit-in-kind because the lump sum does not go to the employee or their family
Having a protection policy in place which can include both life and critical illness cover from inception will ensure the business can claim if either event were to happen. As more and more people are surviving critical illnesses it will provide capital at a time when other funding options may not be available.
At Humphries IFA we have access to the whole of market allowing us to provide competitive quotes and policies to cover all identified protection needs.