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Key man insurance is essentially insurance taken out by a business to protect potential financial losses that would arise from the death/disability/incapacitation of an important member of the business.
Capitalise Wealth has experience in this field and, as we know no 2 businesses are the same, we tailor a model that best fits with the needs of the current business structure
The easiest way to quantify what the loss on the business/partnership would be should the key individual pass away/become disabled, would be either:
- The number of years it would take for a replacement to reach the key person’s current level of profitability/worth, multiplied by the difference in profits due to replacing the key person
- A multiple of the key person’s salary
Questions and Answers:
Are the premiums paid on the policy by the employer deductible for tax purposes?
The premiums are deductible which is a win for a company, as they can offset the premiums off their profit for the year.
Who owns the policy?
It is usually owned by the company, on the life of an employee, with the proceeds being paid to the company on the event of a death or a disability.
Are the proceeds from the policy taxable?
Yes, they are and this an important thing to remember when selecting the amount of cover initially.
Is there a one size fits all structure, or could we elect different tax structures?
There are various alternatives. For an example, an alternative option to consider would be to make the premiums non-deductible, making the proceeds non-taxable at the end.
Just imagine how devastating it would be if you or a family member spent your entire life building up a business and you or them became disabled or died and your loved ones were left to try and find a way to continue running the business.
Contact Capitalise Wealth Management today to find out more…