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Keyman Insurance: Tax Treatment and Policy Ownership

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Updated: 28 May 2024

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Who is a key person or keyman?

A key person or keyman is an individual whose continued association with a business provides that business with a significant and direct economic gain. Economic gain means more than just profits. It can also include inter alia, capital injections, cost efficiency, goodwill, access to credit and contacts with suppliers and customers. Business owners will also usually be key persons.

What is key person or keyman capital insurance?

Key person insurance or keyman insurance can compensate the business for the loss of a key person in two different ways: business profitability (revenue purpose); and the capital value of the business (capital purpose). Whilst both revenue & capital protection are important, this article will focus on the second area.

Reduction of the capital value of a business

Key person insurance or keyman insurance proceeds can be applied to maintain the capital value and stabilise the business. The capital value of a business following the loss of a key person could be reduced in the following ways:

Establishing the level of cover for keyman insurance