What is a 'key person'?

Someone who is vital to the ongoing running or success of your business. This could be you, your manager, or business partner. Think about the key people in your business, could you afford to lose them?

What is key person insurance?

Insurance that can compensate the business for the loss of a key person covering the following:

• business profitability (revenue purpose);
• capital value of the business (capital purpose).

Money from this insurance can replace the lost profit or capital value that the key person would have generated.

Insurance benefits can be used to stabilise the business until a replacement is employed, lessening the trauma of the event for you and your business.

What types of insurance make up key person insurance?

There are three types of insurances which can be used to cover key people:

• Death;
• Total and Permanent Disability (TPD); and
• Trauma.

What is the taxation treatment of key person insurance proceeds?

It is important to consider both the income tax and the capital gains tax (CGT) treatment of key person insurance. The tax treatment will depend on the type of policy used and its purpose.

Revenue purpose insurance premiums are tax deductible to the business, and the claim proceeds are assessable. Capital purpose insurance premiums are not tax deductible to the business and the claim proceeds are not assessable.

Puzzled? For more information on key person insurance call us on 1300 333 143 and we'll put you in contact with a Personal Risk Consultant near you.