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Key person life insurance

This describes cover taken out by a company on a key employee whose work for the company adds substantial value to that company.   This might be a key marketing person or technical designer.   A loss of that key person could substantially affect the future development and financial position of the company and key life insurance has come in to provide some form of financial compensation for the company.

The sum insured should be related to the amount the company estimates it would loose if the key person dies. That amount could include the cost of recruiting and training a replacement.   The company will need to show that it has sufficient insurable interest in the amount of sum insured it has selected.   The life office will want details from the company about this as well as details of the life to be insured showing their duties and expertise for underwriting purposes.

These types of policy are becoming more popular in the UK but still not as popular as they are in the USA.

These polices are usually written as five year renewable term insurances. Whether or not the company is able to obtain corporation tax relief on the premiums will depend on several factors and no doubt the company will take appropriate advice. The policy may be arranged to pay the sum insured in instalments as this spread may more exactly reflect the financial loss to the company and so how the income paid to the company is treated for tax reasons into different annual accounting periods.
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