Key Person insurance – What is it and why would my business need it?

 

If one of your key employees or directors became seriously ill or died unexpectedly, would it have a negative financial impact on your business?

 

This is exactly what key person insurance covers. It will pay out a fixed amount to your business in the event of an insured person being unable to work.

 

The funds could be used to:

 

-          Replace a key employee

-          Provide funds to buy out a deceased directors shares

-          Tide the business over during a period of disruption

-          Repay loans

 

How much it pays is up to your judgement and what monthly premiums are affordable.

 

How much does it cost?

 

As an example £100,000 for Key Person Cover for a business with two directors age 34 & 41 was recently quoted as £63.26 per month (January 2023).

 

In the event either director became seriously ill or died the business would receive £100,000 to help with bouncing back.

 

 

What’s the Tax Treatment?

 

The cost of the monthly premiums are normally an allowable business expense, deductible from corporation tax.

 

If the policy pays out the proceeds are classes as a trading receipt of the business and will be subject to corporation tax that year.

 

 

How can Cheylesmore Chartered Accountants help?

 

Cheylesmore Chartered Accountants can help businesses understand the tax implications of purchasing and maintaining key person insurance policies. Depending on the specifics of the policy and the business, the premiums paid for the policy may be tax-deductible, and the policy payout may be subject to taxation. Cheylesmore Chartered Accountants can help businesses navigate these tax implications and ensure that they are making the most tax-efficient decisions regarding their key person insurance.

 

Overall, Cheylesmore Chartered Accountants can provide valuable guidance and support to businesses looking to implement key person insurance policies.