Key Man Insurance Agreement Template
Other types of insurance, such as insurance acquired from an irrevocable life insurance fund (or ILIT), can provide the funds necessary to pay inheritance tax (due within 9 months of the death of a key owner) in order to avoid a tax guarantee on a company owner`s share of a business, not to mention interest and penalties. Such a tax debt could even force the sale of the business if, as a result of the sudden and unexpected loss of a business owner, there are no liquid assets to pay taxes. Why do I need a key-man deal? Often, a company employs someone who turns out to be a critical part of the business. If something happened to that person, the company could suffer seriously. This encourages the company to purchase life insurance coverage from a key man through the critical resource. A written agreement can be a useful document for the company to sign with its key resource. It defines the rights and responsibilities of the critical resource with respect to the insurance policy, including what could happen to the policy if the resource leaves the business. Hmrc, the UK taxman, believes that key insurance is tax efficient when it is taken out “exclusively for business purposes.” In particular, if the company takes out key man insurance to protect the company from the loss of earnings resulting from the loss of its employee, the premiums are not taxable. If a key employee has a significant number of shares, then the key man insurance could be considered to have been taken out for his own interests and not for the transaction.
This is particularly the case when critical disease coverage is added to the policy. For the most part, key man insurance can be tax efficient, but it is always best to check with a financial advisor or local taxman before making assumptions.  In Australia, key health insurance is generally not deductible unless it is specifically used to protect business income. Revenues in Australia, when used for revenue, can be taxable and trigger a Capital Gains Taxation event depending on the ownership of the directive. In the United Kingdom, the main principles of taxation of insurance for key persons were outlined in 1944 by the Chancellor of the Exchequer, Sir John Anderson. Under the Andersen Rule, “tax treatment would depend on the facts of the case and it is the responsibility of the assessment authorities and appel appeal commissioners to determine, if necessary, liability on the basis of those facts. However, it is recalled that the general practice in the treatment of workers` life insurance is to treat premiums as authorized deductions and that all amounts collected under a policy are considered commercial revenue when (i) the exclusive ratio is that of the employer and the worker; (ii) insurance must realize the loss of earnings from the loss of the worker`s services; and (iii) it is annual or short-term insurance.