The key directors and employees of a successful company bring knowledge, experience, and expertise. Without these, the business would not succeed.
The profitability of the business could be interrupted by the following:
For businesses concerned with ownership continuity, director succession planning through Co-Directors Insurance is another key strategy to mitigate the impact of a director’s death.
In addition to Keyperson Assurance, income protection cover for directors and staff ensures financial resilience during extended illness or incapacity.
Keyperson Assurance is life assurance and/or specified illness cover taken out by an employer on a key director or employee, to protect the employer from the financial consequences of that individual’s death or illness.
The cover provides the business with a lump sum payment which can help protect against loss of profits that may arise from the death or diagnosis of a specified illness of a key director or employee.
Lump sum benefits from Keyperson Assurance may also support business savings and investment options during recovery or restructuring.”
With cover in place, the company will receive an immediate pre-determined lump sum payment on the death or diagnosis of a specified illness of the individual insured under the policy. The company is free to use these funds in any way it wants. It could:
There are a number of considerations involved in putting Keyperson Assurance in place:
The company can insure any director or employee on whose death or diagnosis of a specified illness could result in the business suffering a financial loss.
To determine the amount of cover needed to insure a key individual, the following should be considered:
The policy is set up as a “Life of Another policy” whereby:
To preserve company control, corporate share buy-back strategies such as Company Buy-Back Insurance complement Keyperson cover by securing the transfer of shares.
Generally speaking, Keyperson Assurance premiums are not admissible deductions for Corporation Tax purposes.
However, the Revenue Commissioners have outlined that, where all of the below conditions are met, such premiums may qualify as admissible deductions*:
Source: Revenue Tax and Duty Manual January 2023. * See Page 8 for further guidelines on tax deductions.
Effective retirement planning strategies are essential alongside Keyperson Assurance to ensure financial security for key individuals post-employment.
The Revenue Commissioners set out their general position regarding the taxation of the proceeds in the hands of the company as follows:
“While the allowability of a premium or the chargeability of a benefit are strictly separate issues, it will usually be the case that:
However, it would not be accepted that a benefit is not chargeable to tax simply because an employer decided not to claim a tax deduction for the premiums.”
Source: Revenue Tax and Duty Manual January 2023.
ABC Ltd. wish to take out Keyperson Assurance to cover a director who owns 60% of the company. They wish to protect the company against the financial loss it would suffer if he/she were to die or suffer a specified illness.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction cannot be claimed on the premiums as the director is deemed to be a proprietary director.
Proceeds: Any potential proceeds will not be subject to Corporation Tax.
ABC Ltd. wish to take out Keyperson Assurance to cover their top sales manager for €500,000. They wish to protect the company against the loss of profits (loss of revenue and the costs involved in recruiting a successor) it would suffer if he/she were to die or suffer a specified illness.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction is allowable (as all the Revenue Commissioners’ conditions are satisfied). The type of loss being insured against here is loss of profits. The relationship is that of an employee & employer, the employee has no substantial proprietary interest in the business and the insurance is intended to meet the loss of profits resulting from the loss of the employee.
Proceeds: In the event that a benefit is paid under the policy, it would be subject to
Corporation Tax i.e. the proceeds are accounted for as if they were the gross profits of the company.
ABC Ltd. has taken out a loan of €500,000 to purchase a commercial building. The company is eager to arrange Keyperson Assurance cover to secure the borrowing.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction cannot be claimed on the premiums as the loan cover relates to a capital borrowing. Therefore, a tax deduction is not allowable.
Proceeds: Any potential policy proceeds would be capital in nature as the loan was taken out to protect against a capital loss and would not be taxable.
Keyperson cover focuses on the business impact, whereas individual life cover policies address the financial needs of the insured’s family.
In a partnership, partners rely on each other for support and are key assets to the business.
Corporate Co-Director Insurance protects the company ensuring that if a director dies, the company can buy back their shares without financial strain.
This is a policy that protects individual directors in a company, ensuring the surviving shareholders have the funds to purchase the shares of a deceased shareholder,
Get help from Smart Financial knowledgeable Business Assurance advisers to discover coverage that meets your requirements.
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Generally speaking, Keyperson Assurance premiums are not admissible deductions for Corporation Tax purposes.
However, the Revenue Commissioners have outlined that, where all of the below conditions are met, such premiums may qualify as admissible deductions*:
Source: Revenue Tax and Duty Manual January 2023. * See Page 8 for further guidelines on tax deductions.
The Revenue Commissioners set out their general position regarding the taxation of the proceeds in the hands of the company as follows:
“While the allowability of a premium or the chargeability of a benefit are strictly separate issues, it will usually be the case that:
However, it would not be accepted that a benefit is not chargeable to tax simply because an employer decided not to claim a tax deduction for the premiums.”
Source: Revenue Tax and Duty Manual January 2023.
ABC Ltd. wish to take out Keyperson Assurance to cover a director who owns 60% of the company. They wish to protect the company against the financial loss it would suffer if he/she were to die or suffer a specified illness.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction cannot be claimed on the premiums as the director is deemed to be a proprietary director.
Proceeds: Any potential proceeds will not be subject to Corporation Tax.
ABC Ltd. wish to take out Keyperson Assurance to cover their top sales manager for €500,000. They wish to protect the company against the loss of profits (loss of revenue and the costs involved in recruiting a successor) it would suffer if he/she were to die or suffer a specified illness.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction is allowable (as all the Revenue Commissioners’ conditions are satisfied). The type of loss being insured against here is loss of profits. The relationship is that of an employee & employer, the employee has no substantial proprietary interest in the business and the insurance is intended to meet the loss of profits resulting from the loss of the employee.
Proceeds: In the event that a benefit is paid under the policy, it would be subject to
Corporation Tax i.e. the proceeds are accounted for as if they were the gross profits of the company.
ABC Ltd. has taken out a loan of €500,000 to purchase a commercial building. The company is eager to arrange Keyperson Assurance cover to secure the borrowing.
What is the tax position with regard to the Keyperson Assurance premiums and the potential policy proceeds?
Premiums: A Corporation Tax deduction cannot be claimed on the premiums as the loan cover relates to a capital borrowing. Therefore, a tax deduction is not allowable.
Proceeds: Any potential policy proceeds would be capital in nature as the loan was taken out to protect against a capital loss and would not be taxable.
