A key person is an individual whose skill, knowledge, experience or leadership contributes to the continued financial success of the business. In fact, it could be ANYONE whose death could lead to a financial loss for the business through: » Loss of profits. » Having to recruit or train a replacement. » Important personal or business contracts lost due to the key person not being there to maintain a contract. » Loss of goodwill which could have a direct effect when it comes to raising capital for the business or attracting new investors. » Customers and suppliers losing confidence

It’s pretty straightforward, as long as you can reasonably show that the business stands to suffer a financial loss of profits as a result of the death, terminal or critical illness (if chosen) of that employee. They are classed as a key employee.

If a key person were to leave or retire before the end of the key person protection policy term, the business could do one of the following: » Stop paying the premiums and the policy would then lapse. » Continue paying the premiums until the end of the policy term and, in event of a claim, the business would receive a capital sum. » Assign the policy to the key person who would then become the legal owner of the policy and could continue paying the premiums. Where a partner is a key person and the policy is written in trust, the policy would automatically revert to the key person.

A partnership in England, Wales and Northern Ireland cannot be the owner of a policy because it does not have a separate legal identity. If the key person is one of the partners, that partner could take out their own life plan, and write it in trust, at outset, for the other partners. We have in-house trust experts to guide you through the process. The taxation of this can be complicated, for both the company and the life insured. National Insurance and Capital Gains tax may also need to be considered. Our advisers can help by providing specialist advice on this.

If an employer insures their business against loss of profits due to the death, critical illness, accident or injury of an employee, director or another key person, the premiums may be tax-deductible if: » The sole purpose of the insurance policy is to meet a loss of trading income from the loss of that key person, and not a capital loss to the business » If the insurance is a term insurance policy providing cover against the risk of one or more key lives within the term of the policy, and no other benefits. It’s also important that the insurance term should not exceed the key employee’s usefulness to a company