Key Person Cover
Key person cover is life assurance effected by an employer on the life of a key employee, who may also be a shareholder or director, to protect the company against the financial consequences of that individual’s sudden death or serious illness. The sudden death or serious illness of a key person could give rise to a number of immediate financial pressures for a company for example, the repayment of company loans, a loss of business contacts or intellectual property and extra resources may be needed to replace the key individual.
Generally speaking, key person cover premiums are not admissible deductions for corporation tax purposes.
However, the Revenue Commissioners have outlined the circumstances in which such premiums may qualify as admissible deductions:
The sole relationship is that of employer and employee.
The employee has no substantial proprietary interest in the business.
The insurance is intended to meet loss of profit resulting from the loss of the services of the employee as distinct from goodwill or other capital loss.
The plan is a short-term insurance, providing only for a sum to be paid in the event of death.
If the sole purpose of the policy is to repay a company loan or the insured is a substantial shareholder then premiums are not generally deductible as a business expense. Revenue reserve the right to tax the proceeds as a trading receipt if they feel the purpose of the policy was to replace profits.
Talk to Farrelly Financial to find out more about key-person insurance and how it may benefit your company.