Business succession planning & Key person insurance
Many business owners and operators need a key person insurance policy. Whilst every business has different needs, having the right type of insurance in place is crucial. A key person policy (also known as keyman insurance) may be used to repay debt, cover any liabilities of the business, protect the business from loss of key employees or to fund the sale of the business in the event of something happening to the owner.
Taxation on key person insurance depends on the type of policy taken out and the purpose of the insurance. There are 2 considerations:
First, if the insurance is TPD or Trauma insurance and is not owned by the insured or a relative, the proceeds of that claim will be subject to CGT. Second, consideration should be given as to whether the purpose of the insurance is to replace capital or income.
Key person revenue is the most common type of key person insurance. A key person revenue policy provides compensation to the business owner for the loss of an employee, where the loss may have an adverse affect on the profit and revenue of the business.
Key person capital provides funds to maintain the capital of the business, ensuring its ongoing survival after the loss of a key person. As with key person revenue, the policy should be owned by the business, the beneficiary of the policy.
Key person insurance can be complicated and confusing to understand. Contact us today to speak to a key person specialist on protecting your business.