Key Man insurance for business protection

What is Key Man insurance?

If you have a business and you are thinking of protecting your business from any catastrophic circumstance, the best way to do that is purchase Key Man insurance.

Key man insurance is a type of insurance that helps to protect your business against the loss of any person, partner, executive, or employee who is absolutely key to your business success. The loss of a key person could result from a serious injury, permanent disability, or even death. To compensate for such a loss, the business may choose to purchase Key Person cover on the lives of the key people.

This cover can be in the form of a life insurance policy, which has additional cover for trauma and total and permanent disability. Therefore, by having comprehensive insurance on the life of key persons, you can ensure that your business will get the required financial benefits in almost every imaginable situation. The beneficiary for key person cover is the business that purchases the insurance and not individual heirs or nominees of that particular key person.`

Read on to learn more of the benefits of Keyman Insurance or enter your details in the form to receive a quote for cover.

Speak to an adviser to compare keyman insurance

Please enter your full name
Please enter a valid email address
It's important to give us a valid phone number
Date of Birth
Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount.Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
By submitting this form, you agree to the privacy policy
Get quotes

What are the advantages of Key Person insurance?

Key man insurance works two ways – it protects both you and your employee. With key man insurance, your business will be protected in the event of death or disability of your key employee. It also strengthens trust and loyalty among your employees to the company. Other advantages of key man insurance include:

  • Security at an affordable price: When weighing the benefits and the cost of key man insurance. The cost of the premium is relatively cheaper compared to the benefits you can get from it. A secure future and peace of mind that your business will be doing okay in the long run is priceless but can be achieved. Furthermore, have an option to pay your key man insurance with inexpensive term insurance.
  • Ease of ownership: Another advantage of key man insurance which you would greatly appreciate the most is the ease of how quick you can get it. Unlike any other insurance which would require you to sign and submit a lot of documents, key man insurance gives you a better alternative.
  • Peace of mind: Obviously, key man insurance is synonymous with peace and security. Having the knowledge that your company is protected against loss of a key employee brings a great deal of difference to your peace of mind. It gives you confidence knowing you have help in retaining your important employees.
  • Freedom of choice: Key man insurance gives you the freedom of being able to choose. This means that you have the freedom which employees to insure. This also helps you give the proper benefit to those deserving employees.
  • Significant compensation plan: Having key man insurance gives you an option of creating compensation plans funded by universal life insurance. These permanent policies which build cash values can be used by your business if you plan to expand your business in the future.

Types of Key Man insurance

There are three basic types of insurance cover known as key man insurance these are:

  • Buy Sell Insurance - Buy/sell agreement is a type of key man insurance that is taken out to cover the value of shares in the company. It's mainly used to provide a way whereby the business interests can be transferred between owners on the death or total and permanent disablement of one of the partners.
  • Capital Protection Insurance - This type of key man insurance is used to insure key personnel who are guarantors of any business loans the company has outstanding. If such a person was to die or become seriously incapacitated the lender could call on the loan to be repaid or put a stop on any further funds being loaned.
  • Loss of Revenue Insurance - This type of keyman insurance will pay out should a key person be lost to the business through death, total and permanent disablement or a prolonged serious illness. It's designed to compensate the business so the company can go ahead and hire a replacement.

Why do you need Key Man insurance?

Key man insurance is designed to protect a business from loss should a person who is a key to its ongoing success becomes unable to continue involvement in the business through death, illness, injury, or a serious traumatic occurrence. It's therefore needed when:

  • A key person dies and the company needs time and funds to find a replacement. It needs to have a source of money available to compensate it for any loss of business. In this case a life insurance policy taken out in the name of the key person with the business being the policy owner will suffice.
  • A key person is unable to work temporarily. If the key person becomes ill or injured and can not attend work but a replacement has to be hired in the meantime, this can be solved with key man income protection insurance.
  • A key person suffers a medical trauma. A trauma insurance policy taken out on a key person will compensate the business for any loss it may sustain if the key person contracted cancer, a heart attack or suffered a stroke or up to 40 other specified illnesses or injuries.

Situations where Key Person insurance is of particular importance:

  • If the person who dies is the main guarantor of business loans.
  • A key salesperson sufferers a traumatic illness and can-not carry out work for the business anymore, or at least for a prolonged period.
  • A situation where a joint partner in the business dies and his or her company shares are taken over by the deceased partner’s estate.

Tax treatment for Key Man insurance

To avail your business of the most attractive taxation treatment regarding any key man insurance you take out to protect the business from financial hardship, you need to make certain everything you do regarding the cover is always fully documented. This is because the Australian Taxation Office (ATO) will look to see if the policy has been taken out for a capital or revenue purpose. This means you'll have to make clear the intent behind the taking out of the cover in the first place, including any changes you may have deemed necessary in later years. It's important to make sure that it's always absolutely clear how the proceeds of the policy will be used if the time comes when a claim is made. This is why it's essential to always record everything in the company minutes regarding such matters.

Capital protection insurance premiums are not usually tax deductible and any death benefit paid is not taxable as income if its received by the original beneficial owner. Trauma and total and permanent disability insurance benefits do attract a capital gains tax if the benefits are paid into a trust, or the company itself. However no tax is payable if the benefits are paid to the life insured, his or her spouse, partner, or relative.

The same purpose must still be valid when a claim is made for the benefit to be paid as it was when the cover was first taken out. If circumstances have changed, or the benefit payments are going to service a different purpose, the treatment of tax deduction of any previously paid premiums and how the proceeds are assessed will also be altered. If any proceeds have been minuted for capital purposes they won't have been tax deductible but they still may be assessable at the time of any claim if they are then applied as a revenue purpose. For this reason the whole matter should be reviewed annually and accurate minutes kept.

Purpose and conditionsCan you deduct premiums?Are the benefits taxed?Does capital gains tax affect insurance benefits?
Revenue Purposes
  • Yes
  • Yes
  • No
Capital purposes
  • No
  • No
  • No
  • Only for business taxes
  • Only for business taxes
  • Benefits are subject to capital gains tax if the recipient is not business, and is not a relative of the key person

Maximising the use of Key Man insurance

Key man insurance does more than just protecting your company and retaining precious employees. It can also:

  • Give you funds to train and recruit new employees: Recruiting, training, and the whole process of looking for new employees require a lot of time and money. That is why losing an important employee or person in your business might prove quite costly. However, you have help with recruitment and training if you have key man insurance.
  • Help you pay expenses and outstanding financial obligations: When the key person in your business happens to be you as the owner of the company, any loss could incur bigger damage on the profitability of the company. With key man insurance, you have help paying any daily expenses, bills, and outstanding debts while it stabilises and adjusts because of such circumstances.
  • Help you secure loans easier: Key man insurance can be used as collateral when trying to secure a loan in the future. This means that it would be easier for you to execute any proposed expansion since you can easily acquire the loan you are eyeing for.
  • Make your credit position strong. This compliments the reason above. When you have a strong credit position, you can easily get the loan you need for your business.
  • Funding for the restructuring of a business: The loss of a key person can sometimes demand a complete restructuring of business. New partners may need to be secured and some business arms of the company may have to be shut down to ensure that the rest of the business can continue without any problems. Restructuring activities may end up costing a significant amount of money, which can be accessed by having key person cover in place.
  • Buy the stock from the deceased owner’s estate: If you have a partner and supposed he died, the possibility that surviving family members would rather sell their shares than have a hand on it is big. Key man insurance could help you take care of this situation when it arises.

The profit that your business generates is very important. So are the people who work to get that kind of profit. Key man insurance helps you protect both your profit and your people from any damage and uncertainty.

Compare Keyman Insurance Quotes with an Adviser

Was this content helpful to you? No  Yes

Related Posts

Recommended guides

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Ask a question
Go to site