Best Keyman Insurance Plans

Key man insurance is taken out by a business to protect that business against loss should one of their key men be lost due to accident or illness. The premiums are paid by the business and any payment is to the business - not the man’s family. This payment will help the business to stay on its feet even though there may be significant loss of income or revenue due to their key person not being able to work.

There are two different kinds of key person insurance and these are important regarding taxation. Capital protection keyman insurance is taken out if the loss of the key person would affect the balance sheet of the business. You cannot deduct those premiums for taxation purposes, and if a payment is made it is not classed as income and thus it attracts no tax  - however a capital gains tax may apply. This lump sum can be used in various ways; to pay off debts, repay loans or replace lost goodwill.

If the keyman insurance is for revenue protection, e.g. it would impact the profit and loss statement, the premiums are tax-deductible and the payment is taxed as income. However, if the proceeds or part thereof are used to pay operating expenses then a deduction may apply. Examples of revenue protections would be temporary replacement costs, recruitment costs, paying bad debt or training costs.

Almost every business is at risk of undergoing great stress should they lose one or more of the key personnel. Planning and strategies to cope with such an event is something that every business should undertake and is one way to minimise the damage that is likely to occur. Having key man insurance may be one way of ensuring that your business does not go under should something happen to one of your key employees.