According to statistics, only 28% of UK business’s established in the last two years have any kind of business protection in place. Yet 46% would cease trading immediately if a key person died
Typical key people will be:
The two most common questions we are asked regarding key man insurance tax treatment are:
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This depends on age, health and sum assured. Policies over £500,000 normally always require a medical no matter what provider is used.
Yes we always try and make sure the medical is arranged to your convenience however its not always possible to have the medical at home.
There are various options to consider when taking out a keyman insurance policy. It all depends on what you want to achieve with the policy and of course how much budget you have. Different companies have different needs and its all about finding the right policy to suit your business. Below are some of the options you might want to consider.Life Only Key Man InsuranceA life only policy is much like a straight forward term life insurance. A person is insured for a sum of money is which is paid out on death. The only variation from different providers will be whether terminal illness is also included which it normally is. Life Only can be taken out with a level term or decreasing sum assured.Life & Critical IllnessCritical illness can be bolted on to the life insurance or taken out on its own (Not very often) A life and critical illness keyman cover will pay out a lump sum on diagnosis of a critical illness as set in the definitions of the policy. Over 70% of claims are for heart attack, stroke and cancer. Critical illnesses covered will vary between providers, but most will abide by the rules set out from the ABI. Speak to one of our advisers for more specific information on providers and their definitions.Key Man Income ProtectionKey man income protection is another option which can sometimes be more suitable. Much like a personal income protection policy, key man income protection will pay out a monthly income to the company in the event that the life assured is unable to work due to sickness or injury. Income protection policies are normally taken out on a shorter term and the benefit pay-out is normally limited to 12 to 24 months. There is also a set deferred period of no less than 4 weeks which means the key person would need to be off work for at least 4 weeks before the benefit would start to pay out. The underwriting is quite strict and there are only a few companies that offer cover. You will need to have more than 2 employee’s and the life assured can not be liable for more than 70% of company profits.
Keyman insurance is normally taken out by a ltd company. However it can be taken out by sole traders as a “life of another” policy. The company or person taking out the insurance must have a financial association with the life assured.
The policy is taken out by the company to cover an employee so the company owns the policy and is the beneficiary of any claim
You can change the owner of the policy through a “deed of ownership”. These are not provided by the providers and would have to be written up through a solicitor. You may need to change the owner of the policy if your company ceases trading or you leave and want to transfer the policy to a personal cover.
The cost is dependant on the life assured age, smoker status amount of cover and term. Once a policy is submitted to the underwriter it can be either accepted on standard rates, loaded, with an exclusion, postponed or declined. So you will not know the exact price of the policy until you have terms issued.
When a policy is issued at standard rates and the price remains the same as the quote (subject to when its started). A loaded premium is when the underwriter see’s fit to increase the premium due to possible health issues or something else that has come to light since the original application. An exclusion is normally related to a critical illness exclusion of one or more of the definitions. For example someone may be excluded for cancer if they have previously had cancer. Policies are sometimes postponed if the underwriter wants to wait for further evidence or for cool off periods since a previous health issue. Policies can be declined for a number of reasons but its mainly down to someone being too high of a risk due to bad health.
Once you have decided to go ahead the application only takes about 15 minutes. Once the application is submitted to the underwriter it can be accepted straight away. If you are happy with the terms offered we can start the policy straight away. In which case you can be covered within a day. If however the underwriter wants further evidence it will hold up the policy. For example an underwriter may want to see a copy of your GP report. GP’s have been known to take a few months to return a report but in most cases its a few weeks. Once the underwriter has all the information needed its normally only about 48 hours to have an underwriting decision.
The owner of the policy has to be a UK company although the lives assured do not have to reside in the UK.
Yes LLP’s are treated the same as limited companies when it comes to key man insurance.
It really depends on the reason for the insurance. If its to cover a loan or investment they you would normally cover them for that amount. If its straight forward key person insurance then you would need to work out how much that person is worth to company. Think about loss of profits, cost of replacement and debts that would need to be covered and contingency to keep the company running without that person. Use our calculator to help work out the cover amount.
In most cases yes they are. Please take a look at our page on key man insurance taxation for further details on this.
Keyman insurance is underwritten very much the same as a normal life insurance product with Guaranteed and Reviewable rates. It really depends on how long you think you will need the policy. If you belive the person you are insuring will be at your company for 10 years then you should take out a 10 year premium guaranteed or reviewable premium. Taking out a shorter premium may mean having to renew it which will normally mean more expense especially if that person has suffered any illnesses. Taking out a longer term premium will guarantee the rates (if you take out guaranteed rates) and means yoo do not have to renew the policy. You can cancel these policies at anytime without penalty so there is no risk of taking of being stuck with a policy if that person leaves the company. Shorter premiums are normally cheaper as the underwriter does not have to calculate the person being that bit older but as mentioned it will be more expensive if you then have to renew the policy.
Yes we can arrange a policy to pay out monthly amounts. You may even be more suited to a key man income protection policy.
Yes critical illness can be added to any key person policy and will be paid to the company in the event of a successful claim.