Key Person

Essentially this is “loss of profits” insurance, covering any situation whereby the loss of a director or employee whether permanent or temporary has an adverse affect on the profits of the company. This again can be in the form of life and/or Critical Illness cover which is on a life of another basis and comes into the company as a trading receipt for the company to use as it sees fit. But what can be more crucial to a smaller business is the non-critical events that prevent staff from working.

1. A one person Limited Company would start to suffer financially if they couldn’t work after 4 weeks (variable). Usually if you own more than 5% of a limited company the way HMRC views it is you’re protecting your profits which you pay to yourself as dividends therefore it’s personal Income Protection and not a legitimate business expense. Solution: Executive Income Replacement Plan. The Ltd company takes out “life of another” Income Protection on the employee (quite often one and the same person) If the employee can’t work the policy pays out and the
money comes in to the company as a trading receipt, the company can do what it likes with the money, it can also be paid to the individual as sick pay ( where tax and NICs become applicable) but usually a one man business would be using this to keep his business running by employing someone to do the work enabling him to still generate a profit and a company would use the proceeds to hire temporary cover while the key person was off work. There are also dual benefit schemes which allow the company to pay sick pay and employ a replacement. A legitimate business expense that comes off the bottom line. If the business owner were a Sole Trader or the purpose of the policy was to replace lost personal income it would be more likely that a personal income protection policy would be appropriate as although the premiums cannot be claimed as a business expense the proceeds pay to tax free.

2. A company with more than one employee wants to protect itself from paying wages to staff off sick. Solution: Group Income Protection Cover. This covers a percentage of the cost of paying
the sick employees wages and can also include pension contributions, NICS, dividends. There is additional finance to help the business to cover the costs of recruiting temporary or replacement staff. Dual Benefit also allows employees to continue receiving benefits via the Pay Direct option, even if they cannot return to work and decide to leave the employer.

There are so many variations on Income Protection that only and individual consultation with an expert is likely to lead to the correct product being purchased.