Keyman Insurance and Income Protection can seem very similar. They both insure an individual within a business against becoming ill, although Keyman Insurance can also protect against the death of the individual, too.

In a nutshell, the difference is:

• Keyman Insurance Protects Companies
  Pays out a lump sum to the business should a key person become critically ill or pass away. That way, the business can keep trading while the individual is ill, or replace them if they’re rendered out of action permanently
• Income Protection Protects Individuals
  If you suffer an accident/sickness and become too ill to work, the benefit is paid to you as an individual to keep up with daily living expenses.

Income Protection Vs Keyman Insurance

Income Protection is there to insure against the risk of an individual becoming too ill or injured to work, while Key Person Insurance protects companies against the risk of a key player in the business dying or developing a serious illness / injury.

Key Person Insurance: Key Details

Key Person Insurance protects companies against the risk of a key player in the business dying or developing a serious illness / injury

• Life Insurance provides a cash lump sum should a key individual die (or is diagnosed with less than 12 months to live under Terminal Illness Cover)
• Adding Critical Illness Cover to the policy will provide a cash lump sum for business should the key person develop a condition from a set list of serious illnesses / injuries
• The key person could be anyone within the business responsible for profit generation or who otherwise is vitally important to the ongoing financial and commercial success of the company
• Key Man Insurance is typically taken out for two main reasons: business continuity purposes (to ensure the business can continue without the input of a key person) or at the stipulation of an investor or lender who wants to protect their interest in your business.
• For business continuity purposes, the premiums are typically a tax deductible business expense providing they’re taken out on the life on a non-shareholding employee, as these premiums are wholly and exclusively for the benefit of the business. However, the benefit will usually be taxed on a claim, almost like a trading receipt.
• If Keyman Insurance is to protect a loan, premiums are typically not tax deductible as the premium is for the direct benefit of the lender, not the business. However, the benefit is usually received free from tax.

Income Protection: Key Details

• It pays out a monthly income – up to 80% of your pre-incapacity remuneration – in the event accident or sickness prevents you from earning.
• Many people use Income Protection to provide a comprehensive sick pay insurance that is sometimes lacking among those who work for themselves.
• Income Protection can either be paid for by the business, which is known as Executive Income Protection, or by the insured personally, which is simply Income Protection.
• Company Directors often take out Executive Income Protection, liking the idea of having their business own and pay for the policy.
• Executive Income Protection premiums are typically a tax deductible business expense (subject to the approval of your accountant and the local HM Inspectorate of Taxes) and aren’t considered a P11D or benefit in kind.
• As Executive Income Protection is owned and paid for by the business, the benefit is paid back into the company. This means it’s subject to tax when it is paid out as a replacement for employee remuneration. It is up to the company to distribute the benefit in a tax-efficient manner.
• For non-Executive Income Protection, the premiums aren’t tax deductible as they’re paid for out of post-tax income. However, to compensate, the benefit is usually paid tax-free.

Product Differences At A Glance

Need Help? Get Business Protection Advice

Many of our clients are key to the success of their business, especially individuals who are directors of their own limited company, but this doesn’t necessarily mean Keyman Insurance is right for them.

While Key Person Cover plays an important part in ensuring business continuity or protecting a loan or investment, it doesn’t help an individual who finds themselves unable to work in their company due to accident or sickness.

Our advisers live and breathe protection insurance, so give us a call on 02084327333 or email help@drewberry.co.uk to find out your options.

Why Speak to Us?

You give so much to your business. That’s why you deserve first class service when it comes protecting it. Here’s why you should talk to us:

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