06: What is the tax position?

For life insurance and critical illness insurance, there is generally no tax relief on the premiums. There are some exceptions to this, but most key person policies do not attract tax relief. The proceeds are normally not taxed.

For key person income protection, the situation is normally reversed, with premiums counting as a business expense but regular payments to the firm counting as a trading receipt.

It makes sense to get a ruling upfront from your firm’s tax inspector with regard to how he or she will treat each key person policy. We can advise you further on this and/or work with your accountants or finance director as appropriate.Last Updated