Protect Your Business’s Future with Keyman Insurance in Ireland
Explore Keyman Insurance solutions in Ireland with us. Protect your business’ key assets with our expert advice and tailored solutions. Contact us today or fill out our contact form for a consultation.
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What is Executive Income Protection?
Key Person Insurance, also known as keyman insurance, is a policy designed to protect a business in the event of an untimely loss of a key employee or director whose skills and knowledge are invaluable to the company’s operations. It’s a strategic safety net that ensures financial stability during challenging times.
This insurance is particularly significant in Ireland, where many businesses rely on a few individuals with specialised expertise. The more vital members of staff you have in your company, the higher the chance you’ll be affected by an unexpected loss.
| No. of Keypersons in Firm | Chance of one Keyperson dying before age 65 |
| 2 | 18% |
| 3 | 25% |
| 4 | 32% |
| 5 | 39% |
| 6 | 44% |
| 7 | 50% |
| 8 | 54% |
The Keyperson insurance premium is a small price to pay for the security it brings, safeguarding the company’s future against unexpected circumstances.
Benefits of Keyperson Insurance for Your Business
Key Person Insurance is not just a policy; it’s a business continuity plan for your company. It offers a range of benefits that can be the difference between a company surviving a loss or facing a potential downfall.
Financial Security
The payout from a Key Person Insurance policy provides essential capital to keep the business going, manage debts, and maintain operational integrity in the absence of the key individual.
Attracting and Retaining Talent
Knowing that the business is insured with Key Person Insurance can be a significant factor in attracting top talent, as it reflects the company’s commitment to stability and security.
Tax Efficiency
In Ireland, Keyperson insurance tax relief can make this insurance an even more attractive proposition. There are two options for how your company can receive relief:
- Your premiums may be deductible for Corporation Tax Relief, but your proceeds will be liable for tax,
OR
- Your premiums may not be deductible for Corporation Tax Relief, but your proceeds will not be liable for Corporation Tax.
Investment Protection
For businesses that have secured loans or investments based on the talents of key individuals, Key Person Insurance can provide reassurance to investors and creditors about the stability of their investment.
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How Keyman Insurance Works?
Keyman Insurance is straightforward yet crucial for any business’s risk management plan. Here’s how it functions:
Identifying the Key Person
When a company identifies a team member as ‘key’, they take out a Key Person Insurance policy on that person.
The company pays the premiums, and in return, they’re the beneficiary of the policy.
This means if the unexpected happens, the company receives the insurance payout, not the individual or their family. Add security to your valued staff members by arranging Death in Service benefits for them as well.
How Much Cover Does Your Company Need?
It’s different for each Keyperson, as they all have unique contributions. You can calculate it in a number of ways:
- Estimation of loss of profits
- Multiple of salary over a number of years
- Assess the value of loans your Keyperson has personally guaranteed
- Estimate the Replacement Costs for your Keyperson, including loss of profits, recruitment, training, business disruption, etc
Your company will need to pass the appropriate Board Resolution, recording that the Directors agree to effect Key Person Insurance for one or more employees or Directors.
Don’t forget that you have to tell the Keyperson/s that you’re taking out a policy on them, and the reasons why!
Policy Application and Underwriting
A separate application is completed for each Keyperson. Even if you have a couple, these aren’t joint or dual life policies. Your Keyperson will also need to complete some documentation. Underwriting might involve health checks and risk assessments of the Keyperson.
Premium Payment
Once the policy is in place, the company pays regular Key Person Insurance premiums. These premiums are calculated based on the key person’s value to the company, their health, and the policy terms.
Policy Issue & Potential Claims
When the Underwriting team has reviewed your application, and assuming the application is accepted, your policy will be in force.
If the key person passes away or becomes incapacitated, the company files a claim. After the claim is verified, the insurance company provides a lump sum payment.
This payout can be used to cover lost profits, recruit and train a replacement, or fulfil any financial obligations.
Tax Considerations
The tax treatment of the premiums and the payout can vary. If your payout is likely to be liable for tax, work with your accountant, tax advisor, and financial advisor to ensure that this Corporation Tax liability is included in the cover amount.
Greenway Financial Advisors can provide personalised advice and support throughout the entire process, managing all the application paperwork to ensure that your level of business protection is right for your company.
Keyperson Insurance Premium Options
Choosing the right Key Person Insurance premium option is essential for balancing cost with coverage. Let’s explore the premium options that can be modified to fit your business’s unique needs.
Fixed Premiums
Fixed premiums offer the simplicity of a consistent payment schedule. This option allows for easy budgeting, as the premium costs remain unchanged throughout the term of the policy.
With fixed premiums, businesses can plan their finances without worrying about fluctuating insurance costs, ensuring long-term affordability and predictability.
Reviewable Premiums
Reviewable premiums provide flexibility, with the potential for adjustments based on changes in business circumstances or the insured individual’s situation.
This option can initially be more cost-effective, but it’s important to consider that premiums may increase upon review, depending on the risk assessment at that time.
Level vs. Increasing Cover
Businesses can choose between level cover, where the benefit amount stays the same, or increasing cover, which adjusts over time to keep pace with inflation or the growth of the business.
While level cover keeps things straightforward, increasing cover ensures that the insurance benefit remains relevant and sufficient as your business evolves.
Single vs. Regular Payments
Some policies allow for a single, lump-sum premium payment, which can be advantageous for businesses with available capital. Alternatively, regular payments spread the cost over time.
Deciding between single or regular payments depends on your company’s cash flow and financial strategy, with each option offering its own set of benefits.
Specified Illness Cover
Absence of your Key people due to illness can also disrupt your business. The probability of suffering from a serious illness may be higher than you think. Adding Specified Illness Cover to your policy will protect your business from disruption.
Custom Solutions
Ultimately, the best insurance option is one that’s customised to your business. Greenway Financial Advisors can help you explore these choices, ensuring that your Key Person Insurance policy aligns with your company’s objectives and financial health.
Consulting with a professional advisor at Greenway Financial could help you make an informed decision based on your business’s circumstances. We can guide you through the options available for Key Person Insurance in Ireland and help optimise your coverage.
Tax Implications of Keyman Insurance in Ireland
The tax treatment of Keyman Insurance in Ireland depends on the policy’s intent. Premiums paid under policies insuring against loss of profits due to an employee’s death or incapacity are generally not deductible.
However, if the policy covers compensation for occupational injuries, the premiums may be deductible, and any sums received would be treated as trading receipts. For a policy to be tax-efficient, it must be for a fixed term with no investment component, and benefits can only be paid to the employer.
If the insured person has more than a 15% shareholding in the company, the premiums are not admissible deductions. It’s crucial for businesses to consult with a tax professional to ensure compliance and optimise tax benefits.
How to Choose the Right Key Person Insurance Policy?
Selecting the right Key Person Insurance policy is crucial for protecting your business’s future. Here are some steps to guide you through the process:
Assess Your Business Needs
Begin by evaluating the roles within your business to identify which individuals are essential to your operations.
Consider the potential financial impact their absence could have and use this as a basis for coverage.
Compare Policy Features
Look at different policies and compare their features.
Ensure that the policy covers all your key employees and provides sufficient coverage to protect your business in the event of their death or disability.
Understand the Cost
Key Person Insurance rates are influenced by several factors, including the key person’s health and role within the company.
Many financial planners recommend an amount 10-15 times the key person’s current income.
Consider the Policy Term
Decide on the policy term that best suits your business needs.
It should cover the period during which the key person’s absence would have the most significant impact.
Review the Tax Treatment
Review the tax implications of the policy you choose. In Ireland, the tax treatment of Key Person Insurance can vary, so it’s important to choose a policy that aligns with your tax planning strategy.
Seek Our Professional Advise
Finally, consult with our financial advisor and insurance specialist. We can provide personalised guidance based on your business’s specific circumstances and help you find the best policy for your business.
Frequently Asked Questions
Can Key Person Insurance be transferred if the key person leaves the company?
What happens to my Key Person Insurance if my business changes significantly?
Is the Key Person Insurance payout affected by the key person’s age or health?
How quickly can a Key Person Insurance claim be processed?
Can I have multiple Key Person Insurance policies for different key persons?
Does Key Person Insurance cover temporary incapacity?
Contact Us for Personalised Key Person Insurance Advice
At Greenway Financial Advisors, we understand that every business is unique. That’s why we offer personalised Key Person Insurance advice based on your specific needs. Our team of experts is ready to guide you through the process, ensuring that your business is protected against the unexpected.
Contact Greenway Financial today or fill out our contact form to schedule a consultation and find out how we can help to protect your business’ future. Experience the peace of mind that comes from having your business protected by experts. We assure you of a reply within 2-4 hours of receiving your inquiry. If you need urgent help, feel free to give us a call.
Visit www.greenwayfinancialadvisors.ie or call us today at (01) 8532727.
Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372
