How does key person cover work in practice?

A typical solution for a limited company would be:

  • Policy taken out by the company insuring the life of another individual within the business
  • Company is the policy owner
  • Key person is the life assured (insured person)
  • Company pays the premiums
  • Company receives the claim proceeds

Can the Company claim tax relief on the premiums as a business expense?

This will depend on a number of key criteria (Anderson Guidelines) if the premiums are to be allowable for Corporation tax relief:

  • The sole relationship is that of employer/employee (i.e. not a connected party)
  • The employee must not be a substantial shareholder
  • The insurance is intended to meet the loss of profit resulting from the loss of services of the employee.
  • It is an annual or short-term insurance.
  • Ultimately, you should check with your local inspector of taxes.

What is the tax treatment of key person benefits?

If premiums are allowable for Corporation tax relief, whether taken or not, the proceeds will be taxable.


If premiums are not allowable for Corporation tax relief, normal taxation principles will apply:

  • Proceeds intended for REVENUE use – taxable
  • Proceeds intended for CAPITAL use – tax free.

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