Different Types of Key Person Insurance

Key Person Income Protection

It is important for a financial adviser to establish what existing cover the employee has because, if the employee already has personal IPI, this may limit the amount of group IPI a company can have on that individual. However, some companies will ignore the personal cover that the individual has.

There are two ways of calculating the amount of cover required for Key Person income protection: Multiple Of Salary and Proportion Of Profits. The amount of cover needed for IPI is likely to be lower than for life assurance because:

  • It is always possible that the key person could return to work. If that is the case, some of the problems associated might not occur, especially loss of confidence by the bank or by creditors.
  • Even when the key person is unable to perform full duties, they may still be able to act in an advisory capacity. The effect of their absence on the company’s trading might not be felt so keenly.
  • The term of benefit payments may be shortened, e.g. to a maximum period of five years.
  • There may be other restrictions imposed, e.g. a twelve month deferral period or a maximum policy term.

Key Person Income Protection

Income Protection Tax Relief

By their nature the proceeds of an IPI policy are paid to the company as a regular income, and are therefore taxable.

Premiums on IPI policies for key person assurance are normally allowed for tax purposes if the same criteria as for life assurance are met:

  • The relationship is employer/employee.
  • The cover is short term.

Key Person Sickness and Accident Insurance

The sum assured is paid to the employer to cover loss of profits arising from the key person’s absence.

The sickness element of Sickness and Accident insurance costs more than accident-only cover but costs much less than Income Protection insurance, because the payments on sickness are only paid for a limited period – usually up to 24 months.

All sickness and accident contracts are annually or more frequently renewable, so the insurers may not offer terms at renewal if a person has a disability, has an accident or becomes sick.

Death Cover

A limitation with accident and sickness Key Person cover is that these contracts exclude cover for death from other hazards.

Debt Warning Signs

Debt Warning Signs

Are you in debt? Are you in too much debt? This guide will help you watch out for the warning signs.

Warning Signs That You Are In Too Much Debt

This list of 15 warning signs may help you realise that you might have too much debt.

  1. You borrow more money to make payments.
  2. You are embarrassed to talk about your finances to your close friends or family.
  3. You struggle to make the minimum payment on your credit cards each month.
  4. You continue to use your credit cards even though you are struggling to pay off the balance.
  5. You have incurred overdraft fees on your bank account.
  6. You have incurred charges on your bank account for unpaid bills.
  7. You have been late to making payments on loans, bills or credit cards. Sometimes you do not make the payment at all.
  8. You have no savings.
  9. You have been refused credit or your credit rating is poor.
  10. You are in arrears with a loan or mortgage.
  11. Your credit or store cards are at their maximum limit.
  12. You are not sure about the total amount of debt you owe.
  13. You suffer from insomnia, irritability or some kind of stress related physiological condition.
  14. You gamble money in desperation.
  15. You think that you are in denial about your debts.

Debt Warning Signs

What to Do About Debt

If you think that’s some or all of the above warning signs applied to you, you should consider consulting a debt management solution provided by a debt management company.

Expression of Wish form

Expression of Wish form

An Expression of Wish form assists employers in determining who they should pay the proceeds of a death in service scheme to should an unfortunate event happen which leads to the death of an individual who is covered.

If your employer provides cover of this type, this information will be beneficial.

Death In Service Scheme

Your employer provides a benefit to you that would pay out a lump sum which is a multiple of your salary if you die. The cost of this benefit is met by your employer and there is no P11D tax liability for you.

The death benefit is paid by an insurance company to the Trustees of your death in service scheme.

The Trustees are the individuals at your company with Directorship status and they have a duty to make enquiries to establish any potential beneficiaries.

Purpose of an Expression Of Wish Form

By filling in an Expression Of Wish form you will make this easier and quicker for them to establish any potential beneficiaries, and what you wishes were.

It is important that you continue to keep it under review and update it when anything changes: it is not just your circumstances that might change (which might mean changing your nominations); you should also update any contact details for potential beneficiaries. Adding an email address and contact telephone numbers for potential beneficiaries on the form would help in the event that a claim needs to be paid out.

The Trustees still have discretion over where the benefits would be paid. However, if there is a full completed and up to date expression of wish form on your personnel file, this makes it a lot easier for them.

Importance of a Will

As part of good personal planning you should of course also make sure you have a Will in place and update this on a regular basis. A reference to the death in service scheme in your Will would be wise and this should specify:

  • who you would like to benefit from any payment from this scheme, and
  • reference to the completion of an expression of wish form.

If you die without a Will, the intestacy rules apply to your estate and some of these rules might not be to your liking. Although the Trustees might make reference to the rules of intestacy when paying out a claim from the death in service scheme where a Will and expression of wish form is not in place, they are not bound by those rules.

If you don’t complete an Expression Of Wish form, any benefit that may become payable will be paid out by the Trustees – however, it could be a lengthy process at what is a very distressing time for everyone involved.

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