Anyone looked at key man insurance to use LtD Co to pay for life assurance? Any recommendations?
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Key person cover is traditionally the name given to life cover effected by a company on the life of a key employee, to replace profits lost as a result of the employees death, so i suppose the appropriateness of this type of cover will depend on what you're trying to achieve.Originally posted by jayzeer View Post
If its to get relief on the premiums, ie if the premiums have been allowed as an expense of the business, then any proceeds are likely to be treated as a trading receipt and therefore taxable, so you may need to gross up the sum assured.
There are a number of ways you can write a keyman policy and a number of policies that can be used and they all have different interpretations with regard to the taxation of the policy. -
Follow-up
Thanks for your reply - actually I was thinking of getting life assurance for myself, around £250k worth, but getting it as key man insurance and paying the premiums directly through the ltd co. If anything happened to me the company would get the sum assured - my spouse, a director in the co., could draw on it through dividends etc.
All above to save me paying the premiums through my pocket directly.
Do you know who could arrange this, if still a worthwhile arrangment?Comment
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If the director (you) is a "key" employee, such that their death would result in a loss of profits then it is fine for the company to take out a policy on them. However, where the director is also a shareholder in the company this may have an impact on the tax treatment of the policy and you need to be aware of this. The sum assured also needs to be relevant and acceptable to the Local Inspector of Taxes who's the one who ultimately determines the validity and tax treatment of premiums and benefits. There are a couple of acceptable formulae.Originally posted by jayzeer View Post
i know there are some people who post here who think IFAs are a waste of time but if you're going to take the trouble to set up this type of policy you want to make sure it's done properly. An alternative would be Directors Share Purchase which is still a life assurance policy but you don't have to bother with the Anderson Rules which cover Keyman polices. It's simply a life policy written in trust for the benefit of the other Director/s which pays out on the death of a Director a sum assured equivalent to their financila interest in the business.
Speak to a good IFA - they can deal with it for you.Comment
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Life insurance is one of those things better paid with post-tax money since the benefit is then paid out tax-free. If you pay the premiums with pre-tax money - the benefit will be fully taxable. Hardly worth the savings on the premiums.Comment
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