I have been doing some research into Key Man protection and have not come across whether such cover should be written into trust for tax purposes?
Key Person Insurance is designed to pay a lump sum to the business on the death or diagnosis of a critical illness of a certain vital member of staff.
It is important to recognise this is a policy a business takes out to protect its future profits and success of the company. As such, the key person in question pays no premium and receives no benefit should such events arise.
Since the policy is set up on the life of another with the business paying the insurance premiums and any benefit payable being paid to the business the policy should not generally be set up in trust.
However, it’s worth noting that there will likely be some tax implications on a claim from the money going back into the business, as it will typically be treated as a kind of trading receipt.
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