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.
Sam Barr-Worsfold
Independent Protection Expert at Drewberry
Executive Income Protection | |
|---|---|
| Aegon
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| Unum
| Income Protection |
| Aviva
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| Liverpool Victoria
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| Royal London
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| Vitality
| Key Man Insurance |
| AIGAIG 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.
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| AvivaAviva Key Man Insurance forms part of its Business Life Insurance Options policy.
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| Legal & GeneralLegal & General was founded in 1836 and has since grown to become an international provider of insurance, pension and investment products.
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| Royal LondonRoyal 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.
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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 help@drewberry.co.uk.
Tom Conner
Director at Drewberry
Small wealth review
Or call us on 0208 432 7333
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