Can I purchase life insurance for key personnel?

This week our reader wants to know if a company can get life insurance for its key personnel.

Reader question:

My husband and I have a small business – we are the directors. We only employ two people plus ourselves.

We would like to include some kind of life insurance for ourselves and one of our coworkers (who has been with us for a long time) but don’t want to set up a group plan for so few of us.

Can the company only pay for our individual policies?


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Lisa Tuck from Smith & Pinching responds:

If your business were to pay for individual policies for you and your employee, it’s likely that the premiums could be considered a benefit for P11D purposes, and you would be taxed accordingly.

However, there is a special type of business insurance that covers employees, including managers, without a group plan.

Appropriate life coverage will provide a lump sum payment to the family or dependents of the covered person if they die during the term of the policy. It can also include terminal illness cover.

There may be limits on the amount of coverage available based on age and compensation, and there will be a list of definitions and exclusions relating to the conditions covered.

The policy is owned by the business and the premiums are paid by the business, but as long as the policy can be considered “wholly and exclusively for the purposes of the business”, the premiums will not normally be considered a taxable benefit for the purposes of the business. the employee.

The premiums and any benefit paid are eligible for exemption from income tax, corporation tax and national insurance.

The policy must be in a relevant police trust with the employee’s family or dependents named as beneficiaries.

Benefits paid are generally not counted as part of the deceased’s estate if they are written in trust, so they will normally be exempt from inheritance tax.

There may be different types of trusts available and potential tax burdens may arise within the trust itself. Therefore, advice should be sought before proceeding.

It is a marketing communication. The opinions expressed in this article do not constitute advice.


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