Keyman Insurance and Income Protection can seem very similar. They both insure against an individual within a business becoming ill, although Keyman Insurance can also protect against the death of the individual, too.
Many of our clients aren’t sure of the difference between the two, or are confused about which one they need.
Income Protection is there to insure against the risk of an individual becoming too ill or injured to work.
Key Person Insurance protects companies against the risk of a key player in the business dying or developing a serious illness / injury
IMPORTANT NOTICE 🧐
The tax treatment of Keyman Insurance by HMRC is a complicated area and we recommend you receive detailed advice from your accountant before proceeding with a policy.
There are a number of key differences between the two policies which we have detailed below.
Key Man Insurance
Income Protection Insurance
Protects the business against the loss of a key individual, either through death or critical illness
Provides individuals, e.g. company directors, with a replacement income if they can’t work
Written on the life of the key individual, but usually owned and paid for by the business
Can be owned and paid for either by the business (Executive Income Protection) or by an individual
Pays out one lump sum on the death or serious injury of a key individual to support the business
Pays a monthly income – either directly to the policyholder or into the business to be distributed to an individual
Can be used to provide business continuity or to provide backing to an investment / corporate loan
Payout can be used however it’s required, typically on everyday expenses such as food and bills
Tax situation is complicated, but premiums can be tax-deductible in certain circumstances
Executive Income Protection premiums are usually tax deductible and aren’t a P11D / benefit in kind
When used to cover a business loan, the benefit is usually tax-free
Executive Income Protection is taxed at point of claim, whereas benefits are tax-free on personal plans
How much you can insure a key individual for will depend on your business metrics and how key they are to the business
You can insure up to 80% of your remuneration in the form of salary and dividends
You add sickness insurance via Critical Illness Cover, which will only pay out if you develop one of a set list of critical conditions of a specified severity
Income Protection is the most comprehensive sickness insurance available and will pay out if anything medically prevents you from doing your specific job subject to your pre-existing medical history
If you’re looking to protect your business against losses caused by the death or serious illness of a key individual, you need Keyman Insurance.
If you want to protect your own income in case you can’t work to support yourself and your family, you need to look at Income Protection.
Independent Protection Expert at Drewberry
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.
We started Drewberry™ because we were tired of being treated like a number.
We know that our clients give so much to their businesses. They therefore deserve first class service when it comes protecting that business and their interest in it. Here are just a few reasons why it makes sense to talk to us:
I’ve held a policy with Drewberry for several years now. They are always friendly, insightful and offer great service.