The whole point of keyman insurance is to protect the company against future profit losses due to death or critical illness of key staff. The company applies for the policy and is the policy owner whereas the key person is the life assured. The company is responsible for paying
premiums and as a result, if the key person dies or suffers a critical illness, the proceeds of the policy are paid to the company.
As the company owns the policy there are no tax implications to the key person unless the policy is assigned to the key person. As far as taxation on the premiums are concerned, these may or may not attract corporation tax relief based on whether your local revenue office feels that you meet ‘the Anderson Rules.’
Taxation should not be seen as a reason not to consider Keyman Insurance. Keyman Insurance is there to protect the company and any possible taxation of premiums is often a small price to pay for the knowledge that the company is adequately protected.
The policy proceeds are normally taxed as corporation tax at the company’s rate for the financial year in the same way that profits would have been taxable too.