Both Keyman Insurance and Relevant Life Cover can provide Life Insurance to key people. They’re also both owned and paid for by a business. However, the two types of policy are distinct and very separate.
Keyman Insurance is for the benefit of the business, while Relevant Life Insurance is for the benefit of the employee and their family.
Key Person Cover is designed for business continuity purposes, so to help the business deal with the loss of a key person by compensating for lost profits, hiring a replacement etc.
Keyman Insurance can also be used to pay out a small sum to wind up the business in the event of a key individual’s death or to repay a corporate loan.
Relevant Life Insurance, on the other hand, is designed for the insured and their loved ones, paying out a tax-free cash lump sum to help financially at a very difficult time.
Essentially, Keyman Insurance is there to protect the business – Relevant Life Cover is there to protect you.
It’s important to discuss the tax implications of Key Man Insurance with your accountant to make sure you stay on the right side of HMRC’s Key Man rules.
You cannot include any element of illness protection within a Relevant Life policy, as this falls foul of HMRC’s tax rules in this area.
Relevant Life Insurance
Ownership and Premiums
Owned and paid for by the business
Owned and paid for by the business
What Does It Protect?
Protects a company by ensuring cash for business continuity purposes should a key person pass away or become critically ill
Protects against the death of an individual by paying out a tax-free cash lump sum to the family of a deceased employee
Why Get Cover?
Key Person Cover is often taken out to ensure business continuity should a key individual dies or suffer a serious illness.
It can often be a stipulation from a lender or investor who wants to protect their stake in the company
Relevant Life Insurance is typically taken out by directors themselves (paid for by the business) for family protection purposes.
It can also be used by micro firms to provide a level of personal life insurance to their employees where they do not have enough members to set-up a Death In Service scheme.
When used for business continuity purposes the benefit is paid back into the company and is therefore typically treated almost as taxable trading receipt
Due to the Relevant Life Trust our advisers will help you set up, the benefit will typically be paid to your loved ones tax-free
Depending on how the policy is set up and its purpose, premiums may be a tax deductible business expense, but check with your accountant and your local tax office
Premiums qualify for corporation tax relief, income tax relief and National Insurance relief when compared with a Life Insurance policy you take out personally
Adding Illness Protection
Add Critical Illness Cover for a more comprehensive protection that includes cover for a list of critical illnesses / injuries as well as death
Any protection against illness must be paid for separately for tax reasons, perhaps with Directors Income Protection
Level of Cover
The sums assured with Keyman Insurance will depend on your business metrics and how key a particular individual is to the company
With Relevant Life Cover, the sums assured are typically represented as multiples of your remuneration in the form of salary and dividends
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 was formed out of the Norwich Union-CGU PLC merger in 2000, but the company can trace its roots back to the 17th century.
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.
Relevant Life Cover
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.
In 2015, Legal & General won the ‘Life Insurance Provider of the year’ award from the Personal Touch Awards.
Scottish Widows is a highly praised provider of pension and insurance products across the UK with nearly 6 million customers.
Zurich owns locations in more than 170 countries and provides insurance products and services on a global scale.
To summarise, Relevant Life Insurance protects an individual employee and their family in an incredibly tax-efficient manner should an individual pass away.
Keyman Insurance is there to provide business continuity or to repay a loan / investor should a key person crucial to the running of the business die or become critically ill.
People often confuse Relevant Life Cover and Keyman Insurance, but they’re two very different policies designed with two very different purposes in mind.
If you’re still not sure which is best for you, please do not hesitate to pop us a call on 02084327333.
Business Protection Expert 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.