Key Man Insurance

Key Man insurance or Profit Protection helps safeguard your business against the financial effects of death, terminal illness, critical illness or incapacity of a key staff member.

In most cases a key person could be the managing director, sales director, business development manager or a technical specialist, although it can be anyone who’s absence due to ill health or death could lead to a financial loss.

Key Man insurance is designed to provide your business with a cash injection in the event of a key person becoming permanently or temporarily unable to make their normal contribution to the business. The cash injection would typically be used to cover the loss of profit and to cover the associated costs of finding and hiring a suitable replacement.

Reasons to Insure your Key Staff

Whatever the function or role of your key staff member, their loss could disastrous consequences for your business.

Industry leader Legal & General conducted research in 2011 with the IOD (institute of directors) showed :

• 95% of businesses had at least one key individual
• 43% of businesses had unprotected corporate debt
• 39% of business owners expected their business to fold within 18 months of the death or critical illness of a key person
• 33% of businesses had no shareholder protection in place
• 58% of businesses had no formal arrangement to establish what would happen in the event of the death or critical illness of a business owner

The consequences could include :

• Loss of profits
• Head Hunting and recruitment costs
• Potential loss of contracts
• Loss of goodwill and ability to raise capital
• Customers and Suppliers may lose confidence in the business

Types of Key Man Protection

A range of financial protection products can be arranged to cover your key staff:

Key Man Life Insurance  - Provides a lump sum cash injection should your key person pass away or suffer with a terminal illness during the policy term.

Key Man Critical Illness – Provides a lump sum payment in the event of your key person being diagnosed with a specified critical illness during the policy term.

Key Man Life & Critical Illness -  Provides a lump sum payment in the event of your key person passing away, suffering with a terminal illness or being diagnosed with a specified critical illness throughout the policy term.

Key Man Income Protection – Provides a monthly benefit to your company if your key person is unable to work in their specific role because of illness, injury or sickness during the policy term.

Taxation of a Key Man Policy

There is no direct legislation on the subject of key person policies and therefore businesses should always consult the local tax inspector. A local tax inspector may allow corporation tax relief on the premiums at outset but the benefit could be taxable. Should you decline tax relief on the premiums at outset then the benefit may likely be paid free of tax. There are many factors that are considered when tax relief is applied at premium or benefit stage and much will depend on the consideration of your local tax inspector.