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We have helped thousands of people compare quotes for Key Man Insurance Policies from the UK’s leading insurers. The quotation and advice service is completely FREE & you are under no obligation to purchase.
We are specialist independent advisers who provide FREE advice and quotations by email for Key Man, Relevant Life, Shareholder and other types of Insurance, whether for Directors, Key Employees Shareholders, Partners or on a personal basis.
We do not employ any sales people, but offer a more personal service from an expert business protection adviser. This allows you to make an informed decision in your own time.
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Useful information and other FAQs
Worst Case Scenario – Pays out a lump-sum when the person covered dies or is diagnosed with a terminal illness (has less than 12 months to live), during the length of the plan and has a valid claim. A terminal illness usually means the insured has been diagnosed with less than 12 months to live. Not to be confused with Critical Illness – see below
Life & Critical Illness Cover
Pays a lump-sum when the person covered dies during the length of the plan, or is diagnosed with a terminal illness or one of the critical illnesses covered and has a valid claim. Also normally included is Total Permanent Disability. As the chance of claiming on this type of policy is about 5 times higher than life cover only, it is more expensive.
Critical Illnesses are things like the diagnosis of a Heart Attack, Cancer, Stroke etc although insurers cover many other illnesses and accidents.
Critical Illness cover often includes smaller payments for carcinoma in situ of the breast, low grade prostate cancer, Accident Hospitalisation Benefit and children’s critical Illness cover. Claims on these elements usually do not affect the main policy provisions and cover.
Joint Life Plans
These policies will pay out when the first person covered dies during the length of the plan, or is diagnosed with a terminal illness, or a critical illness (if this has been chosen) and has a valid claim. The policy then finishes and no further claims can be made. Nowadays it is often more cost effective to have two separate policies, as if one person claims the other still has cover in force. The additional cost is often very small for in effect doubling your total cover.
This is the length of time a policy is set to run for (5, 10, 25 years etc). As I always recommend ‘Guaranteed’ rates, then once the policy has started the amount of cover and premiums will not change unless indexation (see below) has been added. While the insurer cannot cancel the cover or change the premiums there is no tie in or early cancelation fees if the policy is stopped before the end of the term by you. (See below – Cancelling existing policies)
Term – How long?
Especially with Key Man Insurance it is often tempting to opt for a short term (5 years) because of the cost. However if the protection is required again the premiums will have increased dramatically (as you would be 5 years older). Also, if your health has deteriorated or BMI increased then either cover might not be available, or only at a further increase in cost (rating). Cover should be put in place for as long as you expect the problem you are solving to be there – this is usually the cheapest option in the long term. All policies are cancellable at any time without cost if the cover is no longer required in the future.
Indexation is designed to protect your plan against inflation. Every year, you have the option to increase the amount you’re insured for, in line with any changes in the Retail Prices Index (RPI) or a set amount (often 5%) without the need for further medical evidence. If you choose this option your amount of cover will usually increase each year. Your premium will also increase each year but only to pay the cost of the additional cover. This option can be removed at any time and the sum assured and premium will then stay the same to the end of the term.
The amount of cover reduces over the term of the policy to £0. A lower cost method of providing life cover, usually to cover a repayment mortgage. However the premiums remain the same over the term and the chances of claiming are increasing at the same time as the benefits are decreasing. This often means a level or indexed sum assured is more useful as it is unusual for people to keep the same mortgage over the long term.
People tend to re-mortgage or move house etc before the end of the term, which means with level or indexed cover there is more chance that you may not have to buy a new policy in the future when you are older and premiums have increased.
When I initially quote, this is based on a ‘Whole of Market’ comparison of insurers standard monthly premiums dependent on the type of cover, term, your age, and if you have used tobacco products in the last 12 months (smoker or non-smoker rates). If you decide to go ahead I will then spend 5 -10 minutes on the phone with you to collect the information I require to apply for a ‘no obligation’ underwriting decision from the insurer.
Once I have applied online to the chosen insurer for a policy on your behalf (no cost or obligation) the application is assessed by the insurer (called underwriting). They will then take into account your health, BMI, any dangerous sports or hobbies and foreign business travel. They may also write to your surgery for a medical report (with your permission) or ask you to have a medical. When the assessment is completed, which is sometimes immediate with our online systems, or can take weeks if your surgery is slow in returning the information requested, then you are offered terms.
After the underwriting process Terms (the offer to insure you) are issued to us/you. These could be either…
- Standard terms – which means the same cover and price as per the application
- Rated terms – cover is offered with an increase in premium
- Terms with exclusion(s) – the exclusion would be for claims due to certain medical problems
- Decline – This insurer declined to offer you cover.
Could be a mixture of the above.
At this point you can either start the policy, change the amount of cover, or if a rating or decline has been given, we may apply elsewhere if we feel we could get a better offer.
Starting Your Policy
You are not covered and no premiums will be taken until terms have been offered, you are happy with them and a start date is given to the insurer by us. If you decide not to start the policy as soon as terms are offered, and if your health deteriorates before the start date, we need to inform the insurer and the offer can be withdrawn. Terms are only offered for a specific period, if they are not taken up, usually within 90 days, they are withdrawn and a signed declaration that your health has not changed may be required to reactivate them. If you go through a birthday or a half birthday (or even a quarter with some insurers) between applying and the policy starting, then the premium will increase because of your increase in age. I will tell you if this has happened and a new illustration will be produced with the new premiums.
Depending on start dates and Direct Debits being set up it may be that your premiums cannot be collected straight away. If this is the case, the insurer may take 2 premiums in the second month, then the premiums will settle down to once per month.
Cancelling Existing Policies
If you are replacing an existing policy with a new one, then as we often cannot cancel a client’s policy ourselves, it is your responsibility to do this. The quickest and easiest way to do this is to cancel the Direct Debit and policy will then lapse at the next payment date. The insurer will write to you to see if the cover is still required – you can either respond or ignore these letters. We cannot be held responsible for any double payments if you don’t cancel any existing policies that are no longer required.
Types & Methods of Setting Up Insurance Policies
Personal, Family or Mortgage Protection
Policies are set up on a personal basis and paid for from your personal bank account. Any pay-outs are normally paid tax-free, either to you or your estate. Personal life policies are often put in trust for your dependents.
Key Man or Business Protection
Most businesses rely heavily for success on a few key people within the organisation. If one of these people were to die or be diagnosed with a terminal or critical illness, the business could suffer badly, with sales and profits falling. However, the business can take out Life or Life & Critical Illness cover on the key person. This means that if the key person died during the length of the plan or was diagnosed with a terminal illness or critical illness (if chosen) and has a valid claim, the business could receive the amount insured. This would usual be be payable as a lump-sum and could be used to help the business to recover, repay loans/mortgages/investors (including Directors loans), hire replacement staff or replace profits.
Relevant Life – Death in Service
Is a form of life insurance for an individual employee. The policy is applied and paid for by the business, and is written into trust so it pays out a lump-sum to the employee or their beneficiaries if they die or are diagnosed with a terminal illness while employed during the policy term. It’s covered by legislation which means that, in most cases, premiums (the cost of the insurance) are viewed as an allowable business expense by HMRC, making it a smarter way to get life insurance. The business pays the premiums but they’ll cost much less overall than taking out a personal policy and paying the premiums out of taxed income.
How does it save on the cost of life insurance? The legislation covering relevant life insurance means it is:
- TAX-EFFICIENT FOR THE EMPLOYEE BECAUSE the HMRC usually views the premiums as an allowable expense for the employer. It is not seen as a benefit-in-kind for the employee, so the employee does not have to pay Income Tax or National Insurance on the premiums. This can be a significant saving for a higher or additional rate taxpayer.
- TAX EFFICIENT FOR THE BENEFICIARIES BECAUSE the policy is set up using a discretionary trust. Any pay-out will also be received free of income tax as well as any inheritance tax liability.
Importantly, unlike group life insurance, relevant life insurance is a ‘non-registered’ arrangement so any pay-out does not count towards the employee’s lifetime pension allowance. Therefore, the family will not have to pay tax on any lump-sum payment in excess of the lifetime allowance when they come to claim on the employee’s relevant life insurance. This can be a significant consideration for employees who may be near the limits of their lifetime pension allowance. Presently (2018/19) tax at 55% will be due on any pension pot over £1m
Shareholder & Partnership Protection
In the interests of financial security, business stability and continuity, it is essential for private limited companies and Partnerships to provide a safety net following the death of a Shareholder or Partner. Shareholder & Partnership Protection is usually put in place to ensure that, on the death of a shareholder/partner, their shares are available for the other directors/partners to buy and there is sufficient cash available to buy the shares.
Income Protection (Sometimes called Accident/Sickness or Permanent Health Insurance)
Provides a monthly tax-free income if you are unable to work because of Accident, Sickness or Disability. Income is provided either up to the age of normal retirement or for a set period of time (12-24 months). Benefits are often limited to a maximum of 50-65% of your gross pre claim income. Cost will depend on your occupation, amount of cover, smoker status and how long you need to be off work before you can start claiming. This is called the deferment period – see below for more details.
Income Protection – Deferment Periods
This is the length of time you have to be off work before you start being paid – 1 day, 1 week, 1, 2, 3, 6 months etc. This may depend on how long your employer or company can/will pay you or your ability to live off savings etc. If you are a Company director being paid via salary/dividends you cannot continue to be paid while you are claiming on this type of cover. For example if you are paid full pay for 3 months you would normally opt for a 3 month deferment period.
Income Protection Benefit Payments
Most insurers pay in arears, this means if you have a 1 month deferment period, you would start claiming from the beginning of the 2nd month of disability. However you would usually not start getting paid until the 3rd month of disability. This needs taking into account when deciding on the best deferment period for you.
Income Protection – Personal
Is set up on a personal basis where you pay yourself but any benefits are paid directly to you tax-free.
Income Protection – Executive
Your Company takes out the insurance on you and pays the premiums. Any benefits are paid directly to the company and will be assessed for NI and Income tax when paid to you.
Income Protection – Key Man
Your Company takes out the insurance on the key person and pays the premiums. Any benefits are paid directly to the company and can be used as per the Key Man Insurance explanation above.
Income Protection – Allowable Benefits
One major problem with any type of income protection is that you can often only insure a % of your income, be it PAYE, Dividends or via self-employment. This means in some circumstances you may not be able to insure as much as you would like. Also, unlike the rest of the insurances above, your income is checked when you claim and if you are over insured, the insurer is within its rights to reduce the benefits it pays out to you. This means you cannot usually continue to be paid (or collect dividends) after the deferment period while you are claiming.