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Both Keyman Insurance and Relevant Life Cover can provide Life Insurance to key people in your company. They’re also both owned and paid for by a business. However, the two types of policy are distinct and very separate.
Key Person Cover is designed for business continuity purposes, helping the business deal with the loss of a key person by compensating for lost profits, hiring a replacement etc.
Keyman Insurance can also be used to pay out a small sum to wind up the business in the event of a key individual’s death or to repay a corporate loan.
Relevant Life Insurance is designed for the insured and their loved ones, paying out a tax-free cash lump sum to help financially at a very difficult time.
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Keyman Insurance is for the benefit of the business, while Relevant Life Insurance is for the benefit of the employee and their family.
Key Person Cover protects a business against the risk of a key player in the company dying or developing a serious illness / injury. There are two separate forms of protection with Key Man Cover: Life Cover and Critical Illness Insurance.
The key person could be anyone within the business responsible for the generation of profits or who otherwise is crucially important to the ongoing 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 be taxed on a claim.
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, but the benefit is usually received free from tax. It’s important to discuss the tax implications of Key Man Insurance with your accountant to make sure you stay on the right side of HMRC’s Key Man rules.
Relevant Life Insurance provides a tax-efficient form of Life Insurance for company directors. You can also use it to provide Life Insurance for key individuals within your firm beyond directors, especially if you don’t have enough employees to qualify for a Group Life Insurance policy.
By running your life cover through your business, you can make savings on corporation tax, income tax and National Insurance payments compared to taking out a policy personally. See how much you could save with our Relevant Life Calculator
The payout will be set as a multiple of your remuneration, which encompasses salary and dividend payments. Your adviser will help you set up a Relevant Life Trust alongside your policy, a crucial component that ensures the benefit is paid to an employee’s loved ones free from taxes. You cannot include any element of illness protection within a Relevant Life policy, as this falls foul of HMRC’s tax rules in this area.
Keyman Insurance
| Relevant Life Insurance
| Ownership and Premiums |
|---|---|
Owned and paid for by the business | Owned and paid for by the business | What Does It Protect? |
Protects a company by ensuring cash for business continuity purposes should a key person pass away or become critically ill | Protects against the death of an individual by paying out a tax-free cash lump sum to the family of a deceased employee | Why Get Cover? |
Key Person Cover is often taken out to ensure business continuity should a key individual dies or suffer a serious illness. It can often be a stipulation from a lender or investor who wants to protect their stake in the company | Relevant Life Insurance is typically taken out by directors themselves (paid for by the business) for family protection purposes. It can also be used by micro firms to provide a level of personal life insurance to their employees where they do not have enough members to set-up a Death In Service scheme. | Taxation |
When used for business continuity purposes the benefit is paid back into the company and is therefore typically treated almost as taxable trading receipt | Due to the Relevant Life Trust our advisers will help you set up, the benefit will typically be paid to your loved ones tax-free |
Depending on how the policy is set up and its purpose, premiums may be a tax deductible business expense, but check with your accountant and your local tax office | Premiums qualify for corporation tax relief, income tax relief and National Insurance relief when compared with a Life Insurance policy you take out personally | Adding Illness Protection |
Add Critical Illness Cover for a more comprehensive protection that includes cover for a list of critical illnesses / injuries as well as death | Any protection against illness must be paid for separately for tax reasons, perhaps with Directors Income Protection | Level of Cover |
The sums assured with Keyman Insurance will depend on your business metrics and how key a particular individual is to the company | With Relevant Life Cover, the sums assured are typically represented as multiples of your remuneration in the form of salary and dividends |
To summarise, Relevant Life Insurance protects an individual employee and their family in an incredibly tax-efficient manner should an individual pass away.
Keyman Insurance is there to provide business continuity or to repay a loan / investor should a key person crucial to the running of the business die or become critically ill.
People often confuse Relevant Life Cover and Keyman Insurance, but they’re two very different policies designed with two very different purposes in mind.
If you’re still not sure which is best for you, call 02084327333 or email help@drewberry.co.uk to talk through your options.
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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