Keyman Insurance v/s Relevant Life Cover: Which Is Better
Key people can get Life Insurance through Relevant Life Cover and Keyman Insurance. Furthermore, a firm both owns and supports them. However, the two types of policies are distinct and kept highly separate.
For business continuity purposes, the Key person cover is designed to help the company deal with losing a key employee by making up for lost revenue, finding a replacement, etc. In the case of a key person’s passing, Keyman Insurance pays a lump sum to the company to cover the loss due to the keyman passing away or suffering major sickness or accident.
A tax-free cash lump sum is paid out by Relevant Life Insurance, on the other hand, to the insured and their loved ones to assist financially during a difficult time.
What is Keyman Insurance?
Key Person Cover protects a business from the risk that a key person will pass away or suffer a major sickness or accident. With Key Man Cover, there are two types of protection: critical illness and life insurance.
Life insurance protects against the passing of a crucial person (or them being diagnosed with less than 12 months to live under Terminal Illness Cover). Critical illness insurance pays out a lump sum to the company if a key employee develops a condition from a list of significant illnesses or injuries. Any company employee in charge of generating profits or who plays an essential role in the business’s long-term success could be considered the key person.
As these premiums are completely and exclusively for the firm’s benefit, they are generally deductible as business expenses on the condition that they are taken out on the life of a non-shareholding employee.
What is Relevant Life Insurance?
For company directors, Relevant Life Insurance offers highly tax-efficient life insurance. If there aren’t enough people for a Group Life Insurance policy, you can also use it to provide Life Insurance for essential employees outside of directors. Instead of buying a policy directly, you can save money on corporation tax, income tax, and National Insurance by running your life insurance through your company.
Your salary, which includes salary and dividend payments, will be multiplied by the payout. Your advisor will assist you in establishing a Relevant Life Trust in connection with your policy, a big part that ensures the benefit is given to an employee’s loved ones tax-free.
Keyman Insurance v/s Relevant Life Cover:
#1 – Ownership and Premiums: Owned and maintained by the company.
#2 – What Does It Secure?: Provides funding for business continuity needs if a key employee dies or becomes seriously ill, protecting a company.
#3 – Why Get Cover? Businesses frequently purchase Key Person Cover to maintain business continuity if a key person passes away or develops a major illness. It is usually a requirement from a lender or investor who wants to maintain their ownership stake in the business.
#4 – Taxation: The benefit is paid back into the business when it is used for business continuity purposes, and it’s frequently considered nearly like a taxable trade receipt. Premiums may be a tax-deductible business expense depending on the policy’s structure and intended use but check with your accountant and local tax office first.
Premiums may be a tax-deductible business expense depending on the policy’s structure and purpose, but contact your accountant and local tax office before making any decisions.
#5 – Level of Cover: The amounts insured by Keyman Insurance depend on your business metrics and how important a specific person is to the company.
Also Read: 5 Simple Ways To Protect Your Business
Relevant Life Cover:
#1 – Ownership and Premiums: Owned and paid by the company.
#2 – What Does It Secure?: Provides insurance against a person’s demise by providing the surviving family of a deceased employee a lump sum of tax-free cash.
#3 – Why Get Cover?: For the protection of their families, relevant life insurance is often purchased by directors themselves (and paid for by the company). When there are not enough participants to establish a Death In Service scheme, micro-businesses can also use it to offer personal life insurance to their employees.
#4 – Taxation: Compared to a personal life insurance policy, premiums qualify for company tax relief, income tax relief, and national insurance relief.
#5 – Level of Cover: The sums covered with Relevant Life Cover are frequently multiples of your compensation in the form of income and profits.
Businesses with one or more key employees who play major roles in the firm’s success should consider key man insurance. In the worst-case situation, having a cash balance to help fund a transition when a key employee leaves without warning could help avoid bankruptcy. For more information and guidance, connect with Mountview Financial Solutions. Our personal insurance advisor consults you to make your decision easier.