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Keyman Insurance

A key person can be anyone from a director to an ordinary employee with special expertise such as a research scientist.

A death or serious illness of this key person can have serious financial consequences for a business, such as

• Falling profits while the business attempts to resume normal trading
• Loss of working capital if overdrafts are called in by lenders and lines of credit are suspended
• Unwanted changes in the balance of shareholder control within a company
• Difficulties and conflicts in realising fair value for inherited shareholdings and partnership shares

The solution lies in legal agreements governing the disposal of share holdings and partnership shares, financed through appropriate life and critical illness insurance policies, set up tax-efficiently. The key contracts of insurance are life and critical illness policies.

Life Insurance policies pay benefits on death.

Critical Illness policies pay out on the diagnosis of any of a series of serious medical conditions specified on the policy, such as heart attacks, strokes, most forms of cancer, multiple sclerosis and permanent total disability.

The smaller the enterprise, the more vulnerable it is likely to be to the loss of key personnel through death or serious illness. The death or permanent incapacity of a sole trader, for example, can literally entail the death of the business. Key person policies

The company or firm insures the lives of key individuals for a capital sum (ie the “sum assured”) commensurate with the estimated financial loss to the business in the event of the employee’s death or serious illness.

Key person insurance is complex and should not be undertaken without taking professional advice as to the correct sums assured, the most suitable policies to use and the tax treatment of premiums and claims.