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.
Keyman Cover protects companies
It pays out a lump sum to the business for the business should a key person become critically ill or pass away. That way, the business can keep trading while the individual is ill, or replace them if they are rendered out of action permanently.
Income Protection is very much there for individuals
If you suffer an accident or sickness and become too ill to work, the benefit is ultimately paid to you to keep up with daily living expenses.
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
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.
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
Executive Income Protection
Key Man Insurance
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.
Aviva Key Man Insurance forms part of its Business Life Insurance Options policy.
Legal & General was founded in 1836 and has since grown to become an international provider of insurance, pension and investment products.
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.
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.
Business Insurance, whether you need Keyman Insurance or Income Protection, is a complicated area and it’s beneficial to get expert advice.
We deal with such queries each and every day, we are here to help so please do not hesitate to pop us a call on 02084327333 or email firstname.lastname@example.org.
Director at Drewberry
I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.