In the unpredictable world of business, losing a critical team member can be devastating. Key Person Cover offers a strategic solution to safeguard your company’s financial stability and operational continuity.
What is Key Person Cover?
Key Person Cover is a specialised insurance policy that provides financial protection if a crucial employee, such as a director, founder, or top performer, dies or becomes critically ill. The policy ensures your business can survive unexpected challenges by providing a critical financial safety net.
Key Benefits:
- Financial Protection: Provides a lump sum pay-out to cover revenue losses, hire replacements, and maintain operations if a key individual dies or becomes critically ill.
- Business Continuity: Ensures the company can continue running smoothly despite the absence of an essential team member.
- Employee Retention and Recruitment: Demonstrates the company’s commitment to protecting its workforce, aiding in retention, and attracting new talent.
- Business Confidence: Boosts stakeholder confidence by showing proactive risk management.
- Customisable Cover: Can be tailored to specific business needs and key individuals.
Taxation Considerations
The tax treatment of Key Person Cover can be complex:
- Premiums: May be tax-deductible as a business expense if they meet HMRC’s “wholly and exclusively” criteria for the benefit of the company.
- Pay-outs: Generally treated as a trading receipt and subject to corporation tax if premiums were tax-deductible.
- Shareholder Cover: Premiums for policies covering shareholders are typically not tax deductible, and payouts may be taxed.
- Loan Protection: Premiums for policies covering business loans are usually not tax-deductible, but payouts are often not taxed.
It’s crucial to consult with a financial advisor or accountant to structure the policy in the most tax-efficient manner for your specific business situation.
How It Works
- The business identifies key personnel
- Policy is purchased, and premiums are paid
- If the key person becomes unavailable, a lump sum is paid
- Funds can be used for operational continuity
Why Your Business Needs Key Person Cover
- Mitigate financial risks
- Protect shareholder interests
- Ensure business resilience
- Attract potential investors
- Provide peace of mind
The Bottom Line
Key Person Cover isn’t just insurance, it’s a strategic investment in your business’s future. By protecting your most valuable asset, your people, you secure your company’s long-term success.