Key Man / Individual Insurance in South Africa

Key Person Insurance is a simple, cost-effective solution that provides financial security and certainty for a business in the event of the death or disability of a key person.

The loss of a key person could ruin your business.
Don’t be caught off guard!

Why Key Man / Individual Insurance:

What is a key person? A key person is someone whose absence through death or disability will have a material effect on the future of the business. The most important asset in any business is its people. Small businesses are often reliant on one or two key individuals.The ongoing profitability and sustainability and, as a result, the capital value of the business, are largely reliant on the input of the key employees in the business. Therefore the loss of a key person constitutes a risk for the business.

The loss of one key person through either death or disability, would place significant financial pressure on the company. The purpose of Key Man Insurance, is to cover this type of scenario.

Financial pressure will result from the loss of a key person by way of loss of income due to specific knowledge lost, additional costs incurred to recruit and train a replacement, and loss of goodwill as customers may be less inclined to deal with a new incumbent. Key Man Insurance can help to ease this.

In the event that key individuals have signed surety on credit facilities, their estate is at risk as the bank may call up the facility in the event of death due to the amount of liquidity in the estate and their ability to recover. In this case, it is sensible for the directors to insist on surety cover in event of their death in order to cover their liability.

If the purpose of the Key Man Insurance cover is to cover an expense, then the premiums should be deducted from tax, and any death payouts will be taxable.

A Key Man Insurance policy is usually owned by the company, on the life of an employee, with the proceeds being paid to the company in the event of the employees' death or disability. While this is not the only structure available, it will result in the premiums being tax deductible and the proceeds being taxable. Any losses or expenses incurred due to the demise of the key person, would usually be tax deductible. An alternative would be to make the premiums non-deductible, making the proceeds non-taxable. It is important that these are structured properly at the outset, as there are also capital gains tax and estate duty implications if you get it wrong. The effects of cession of these policies between parties can also become complex. A Financial Advisor should discuss the merits with you on a case-by-case basis, and help you structure the policies correctly.

DIB Solutions (Pty) Ltd have partnered with reputable underwriters and various insurance companies in order to assist our clients with appropriate Insurance cover – we can therefore also assist clients with tailor-made products (where applicable) at competitive premiums. We provide a professional and personal service, as well as build long-term relationships with our clients. Discuss your individual needs with one of our experts – we will ensure that a skilled person assist you.

Also note some of the important considerations when looking for Key Man Insurance:

  • The business can take out a policy on the life of a key person to cover the business against the expensive replacement costs, or to provide cover against a potential loss.
  • The business has the option to insure itself against this risk in a tax-effective manner.
  • Cover Extensions: Certain Key Man Insurance policies allows for certain cover extensions on top of normal benefits. For example, a salary benefit may become payable to family members for a predetermined period in the event of the death of the employee;
  • Key Man Insurance may also be bought as a vehicle to buy the shares of a shareholder;
  • Pending how the Key Man Insurance is structured by your advisor, an allowance may be deducted from income for premiums paid. However, note that there are certain requirements;
  • Premiums paid by the company for Key Man Insurance, can be deducted and may also form part of the remuneration of the person;
  • The Key Man Insurance premiums is normally tax deductible if it is being bought to cover an expense. Upon paying out after the death the pay out will also be taxable;
  • Where individuals signed surety on credit facilities, it may impact the estate if the finance house call up the facility. Keyman insurance may be a sensible option to cover this type of liability.

Please contact us today for fast, friendly, professional advice and service!

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