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Keyman Insurance

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What is Keyman Insurance?

Keyman Insurance – also known as Key Person Insurance – protects your business from the financial impact of losing a key member of staff. This might be the business owner, founder or an employee your company simply can’t do without.

It’s designed to pay a cash lump sum into your business to help you cope with the death or (potentially) critical illness of that key employee. You have two main options in terms of cover:

  • Key Man Life Insurance
    Should a key person die or suffer a terminal illness (diagnosed with less than 12 months to live) the plan pays out a cash lump sum to the business.
  • Key Man Critical Illness Cover
    Adding Critical Illness Cover also enables the plan to pay out if a key person were to suffer a serious illness such as a heart attack, cancer or stroke.

What Does Key Person Insurance Cover?

Key Person Insurance is designed to provide business continuity if a key staff member can no longer perform their job due to serious illness or death. The payout can be used for a variety of means, including:

  • Providing a buffer against loss of profits
  • Paying for recruitment and training of a replacement
  • Repaying outstanding loans
  • Loss of important personal or business contacts
  • Loss of confidence from suppliers and customers
  • Difficulties in raising finance for new developments
  • Loss of detailed knowledge of the business’ processes and systems
  • Winding down a company in an orderly fashion.
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Do We Need Keyman Insurance?

53% of businesses stated they would fold in less than a year if one of their key workers died or suffered a serious illness (Legal & General). How would your company cope?

Despite this apparent risk, Legal & General found that more than half of businesses don’t have any kind of Keyman Assurance. They’re running the risk of severe disruption to business continuity without having cover in place.

Why Key Man Insurance is so important for small businesses…

If the death of a key person would have a significant impact on your business then it is definitely worth considering this protection, especially given the risks involved.

Sam Barr Worsfold Business Protection Expert at Drewberry

Most companies have at least one key person whose loss would cause serious business disruption or even collapse.

The loss of that person’s ambition, talents, vision and drive could have a devastating financial impact on a company.

Sam Barr Worsfold
Business Protection Expert at Drewberry

What’s the Risk of Passing Away?

According to ONS life expectancy data (2012-14), the chances of a healthy male passing away within the next 10 years are as follows:

Age 35
Age 45
Age 55
1 in 62
1 in 29
1 in 12

What’s the Risk of Becoming Critically Ill?

Approximately 4 in 5 claims on Critical Illness Insurance policies are made up of the ‘big three’ illnesses: cancer, heart attacks and strokes.

  • Around 1 in 4 new cancer cases diagnosed every year are among people aged under 60 (Cancer Research UK).
  • 50% of people born after 1960 will be diagnosed with cancer at some point in their lifetime.
  • Almost 1 million people in the UK have survived a heart attack and more than 1.2 million people in the UK have survived a stroke or transient ischaemic attack (TIA) – and almost half of these are under the age of 75. (British Heart Foundation).

IMPORTANT NOTICE
Not every incidence of one of the above conditions will be covered by Critical Illness Cover. Less severe incidences may not be included in your policy wording or may only trigger a partial payout, so it’s essential you check definitions carefully.

Life Expectancy CalculatorA bit morbid we know, but this tool works out the risk of you passing away based on ONS Life Expectancy Data
  • years
  • years
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How Much Does Key Man Insurance Cost?

There are a number of factors that will determine the cost of Key Man Insurance. Some of the key policy factors you can control, such as:

  • Level of cover
    The more cover you require the higher the cost of the policy.
  • Length of cover
    The longer the policy term the higher the risk of needing to claim and this is reflected in higher premiums.
  • Including critical illness insurance
    As the risk of suffering a critical illness such as heart attack, cancer or stroke is far higher than dying you can expect significantly higher premiums.

Other personal factors that you have less control over which will still impact on the cost of the key person’s policy include:

  • Age
    The older we are, the greater the risk of passing away during the term of the policy
  • Current state of health
    Those with severe health conditions, especially those which might limit life expectancy, will typically pay more for key person insurance to reflect the greater risk the insurer is taking on.
  • Smoker status
    If the key person smokes, they are at greater risk of developing a serious, fatal health condition and so insurers will charge more.
  • Lifestyle and hazardous activities
    Lifestyle habits, such as regularly drinking more alcohol than is recommended, or participating in hazardous activities, could result in an insurer increasing the cost of the cover.
  • Family history
    Has any of the key person’s immediate family ever suffered a serious and/or hereditary illness that could impact on them? If so, the premiums may be increased to reflect this.

Average Cost of Key Man Insurance Policy

The below table details the monthly cost of Keyman Insurance split into Life Insurance and Life Insurance with Critical Illness Cover for a healthy non-smoking individual aged 35, 45 and 55.

They’re looking for £150,000 of level cover (i.e. cover that will remain fixed throughout the policy term).

Age
5 Year Policy
10 Year Policy
15 Year Policy
Cost of Key Man Life Insurance
Age 35
£6.21
£7.10
£7.88
Age 45
£10.51
£12.66
£13.73
Age 55
£21.40
£26.78
£33.55
Cost of Key Man Life & Critical Illness Cover
Age 35
£27.51
£32.56
£35.89
Age 45
£59.38
£72.21
£81.25
Age 55
£130.40
£158.57
£179.15
The keyman insurance quote is correct as of February 8th, 2019

You can use our Key Man Insurance quote tool to get instant online quotes from the UK’s leading insurers including AIG, Aviva and Legal & General.

How is Keyman Insurance Taxed?

The tax treatment of Key Person Insurance by HMRC will be dictated by the purpose of the plan and, ultimately, who is to receive the benefits. The rules can be complicated.

How the policies and benefits are taxed can appear quite arbitrary depending on how they’re going to be used.

Protecting Shareholders…

If a plan benefits anyone other than the business – such as a lender or the company’s shareholders (including shareholding directors) – then, by definition, it won’t be ‘wholly and exclusively’ for the benefit of the business. For this reason, it’s unlikely that the premiums will be eligible for corporation tax relief.

Meanwhile, payouts on plans that cover the company’s shareholders usually count as a trading receipt, which means that they’ll also be taxed. So it’s worth remembering that policies that benefit shareholders could be taxed on the way in, and on the way out.

Covering Employees…

By contrast, policies that cover employees are usually regarded as being for the benefit of the business, in which case the premiums should be tax deductible.

However, the benefits still count as a trading receipt (so they’ll be taxed). This means that these policies will also need to have their sums assured grossed up so the business is left with the appropriate amount to protect the business.

Protecting Business Loans…

Key Person Insurance policies to protect a business loan are taxed differently. As the cover benefits the lender (not the business), the premiums can’t be deducted against corporation tax.

However, as the payout from the policy is intended to rebalance the company’s capital account it’s not generally classed as a trading receipt and so isn’t typically liable to any tax. This means that there’s no need to gross up such policies, which naturally reduces the premium.

The details above set out the general consensus on how it is taxed however we strongly recommend discussing your specific situation with your accountant.

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Common Key Person Insurance Questions

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    Compare Best Key Man Insurance UK Quotes

    aegon

    Aegon

    Aegon was founded as Scottish Equitable in 1831. Dutch insurer Aegon N.V. bought a 40% stake in Scottish Equitable in 1994 and became a 100% stakeholder in 1998.

    • Maximum entry age: 83 for Life only / 74 for Life and Critical Illness Cover
    • Minimum term: 1 year for Life only / 5 years for Life and Critical Illness Cover
    • Maximum term: 50 years
    • Maximum cover: No maximum
    • Critical illnesses covered: 43, plus 15 additional critical illnesses
    AIG

    AIG

    AIG Life is the UK arm of US insurance giant American International Group Inc. The insurer got its foothold in the UK protection market when it acquired Ageas Protect in 2014.

    • Maximum entry age: 83 for Life only / 74 for Life and Critical Illness Cover
    • Minimum term: 1 year for Life only / 5 years for Life and Critical Illness Cover
    • Maximum term: 50 years
    • Maximum cover: No maximum
    • Critical illnesses covered: 43, plus 15 additional critical illnesses
    aviva

    Aviva

    Aviva was formed out of the Norwich Union-CGU PLC merger in 2000, but the company can trace its roots back to the 17th century.

    • Maximum entry age: 86 for Life only / 75 for Life and Critical Illness Cover
    • Minimum term: 3 years
    • Maximum term: 70 years for Life only / 50 years for Critical Illness Cover
    • Maximum cover: No maximum
    • Critical illnesses covered: 41, plus 10 additional critical illnesses
    legal & general

    Legal & General

    Legal & General was founded in 1836 and has since grown to become an international provider of insurance, pension and investment products.

    • Maximum entry age: 77 for Increasing Life Insurance / 67 for Life and CIC and Increasing Life and CIC / 74 for Decreasing Life / 64 for Decreasing Life and CIC
    • Minimum term:1 year for Life / 2 years for Increasing Life Insurance and CIC / 5 years or Decreasing Life and CIC
    • Maximum term: 50 years for Life only / 40 years with added Critical Illness Cover
    • Maximum cover: Unlimited
    • Critical illnesses covered: 39, plus 2 additional critical illnesses
    liverpool victoria

    Liverpool Victoria

    Liverpool Victoria has traded as LV= since May 2007. It is one of the largest insurers in the UK with more than 5 million customers across the country.

    • Maximum age for Life Cover: 84
    • Maximum age for Critical Illness Cover: 69
    • Maximum policy term: 45 years (40 years when CIC is added)
    • Minimum policy term: 5 years
    • Illnesses covered: 44 (plus lower payout for 20 ‘additional’ serious illnesses)
    royal london

    Royal London

    Royal London began as a friendly society in 1861, later changing to a mutual society in 1908. Today, Royal London is now the UK’s largest mutual life, pensions and investment company.

    • Maximum entry age: 88 for Life Cover / 69 for Critical Illness Cover
    • Minimum term: 1 year for Life / 5 years for Critical Illness Cover
    • Maximum term: 72 years for Life only / 50 years with added Critical Illness Cover
    • Maximum cover: No maximum for Life / £3 million for Level Critical Illness Cover / £1.2 million for Increasing Life and Critical Illness Cover
    • Critical illnesses covered: 46, plus 14 additional critical illnesses
    scottish widows

    Scottish Widows

    • Maximum entry age: 79 for Life Cover / 64 for Critical Illness Cover
    • Minimum term: 1 year for level cover / 3 years for decreasing cover
    • Maximum term: 72 years for Life only / 52 years with added Critical Illness Cover
    • Maximum cover: £25m for Life / £5 million for Level Critical Illness Cover
    • Critical illnesses covered: 49, plus 8 additional critical illnesses
    vitality

    Vitality

    Vitality is owned by South African insurer Discovery Holdings. Discovery entered the UK market in 2007 via a joint venture with PruHealth and PruProtect, part of the Prudential Group.

    • Maximum entry age: 75 for Life Cover / 60 for Serious Illness Cover
    • Minimum term: 1 year for Life
    • Maximum term: 70 years for Life / 50 years with added Serious Illness Cover
    • Maximum cover: £20 million for Life / £3 million for Serious Illness Cover
    • Serious illnesses covered: Up to 174
    zurich

    Zurich

    • Maximum entry age: 83 for Life Cover / 69 for Critical Illness Cover
    • Minimum term:1 year for Life / 5 years for Critical Illness Cover
    • Maximum term: 50 years for Life only / 40 years with added Critical Illness Cover
    • Maximum cover:Unlimited
    • Critical illnesses covered: 40, plus 2 additional critical illnesses

    Need Expert Key Man Insurance Advice?

    We are here to ensure you and your business don’t miss out on financial security because you didn’t put appropriate Key Person Insurance in place.

    Our experts are here to help provide you with the necessary information for you to make an informed decision.

    Why Speak to Us?

    We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.

    • There is no fee for our service
    • We are independent and impartial
      Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
    • We’ve got bargaining power on our side
      This allows us to negotiate better premiums for you than you going direct yourself.
    • You’ll speak to a dedicated expert from start to finish
      You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
    • Benefit from our 5-star service
      We pride ourselves on providing a 5-star service, as can be seen from our 2252 and growing independent client reviews rating us at 4.92 / 5.
    • Benefit from the protection of regulated advice
      You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
    • Claims support when you need it the most
      You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
    Victoria Slade Business Protection Expert at Drewberry

    Setting up a Keyman Insurance policy can become quite complicated when taking into account the level of cover and tax position.

    If you need any help please do not hesitate to pop us a call on 02084327333 or email us at help@drewberry.co.uk.

    Victoria Slade
    Business Protection Expert at Drewberry

    Extremely satisfied with the help and advice from Drew, since the beginning him understood what I was looking for and have the patience to help me out with all my questions and doubts. Didn’t tried to be push or annoying calling me all the time like so many did before. At the end we find the perfect medical policy for me and my daughter that covers everything that we need. I more than recommend them and if in the future I need something else for sure I will contact them again. Giving only 5 stars because I can’t give 6!!!!

    Natasha Caversan Mucci
    07/06/2019
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