What Is The Difference Between Keyman Insurance & Relevant Life Cover?

What is Keyman Insurance?

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.

• Life Insurance protects against the death of a key individual (or them being diagnosed with less than 12 months to live under Terminal Illness Cover)
• Critical Illness Cover pays out a lump into the business should the key person develop condition out of a set list of serious illnesses / injuries

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.

What is Relevant Life Insurance?

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.

Key Person Insurance or Relevant Life Cover?

Key Person or Relevant Life Insurance?

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.

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