Key Person Insurance FAQs

What Is Key Person Insurance?

The most crucial asset of your business is its people. Talent keeps the operation moving forward. Specific employees are so vital the business would be crippled without them.

It can be a frightening scenario when key staff can’t perform their duties due to illness or death. It happens suddenly, and the business is left unprepared.

Protecting yourself from this situation is sound financial planning. Key Person Insurance in Perth is invaluable since it protects against the sudden loss of key personnel, such as a founder or director.

How Does it Work?

Key Person Insurance works similarly to regular life insurance, but with one primary difference: it is owned by the business, not by an individual policyholder. The company pays the monthly premium, and their contributions make them the direct beneficiaries of this type of insurance.

If a key employee dies or physically can’t work, the business receives insurance benefits. The added funds can then be used by the company for capital or revenue purposes to counteract the loss of key staff.

The insurance coverage also includes paying for the cost of recruiting and training new talent to replace the business’s losses.

What Can It Cover?

The insurance coverage is typically taken out on key personnel. These are the people whose skills and expertise are invaluable to the success of the organization.

The insurance covers any natural condition that renders the person unable to perform their duties for the company. It can include death, complete or partial disability due to trauma, or a severe medical condition.

Related: How to Choose the Right Key Person Insurance for Your Business?

Key Person Insurance FAQs

Is Key Person Insurance taxable?

According to the Australian Tax Office, it depends on whether the benefit is used as revenue or capital.

Revenue is tax-deductible as an insurance premium. When claimed, it becomes taxable.

Insurance proceeds used for capital purposes are not tax-deductible.

How much is the monthly cost?

It depends on many factors, such as age, occupation, term length, and other aspects.

Read our other blog to know more details about what is Key Person Insurance.

Reviewed by Greg Maguire

Greg Maguire reviewed this article to make sure the information is accurate and reflects current insurance practice. It is general advice only and does not take your personal circumstances into account.

Greg Maguire is an Authorised Representative (No. 255354) of AD Advisory Services Pty Ltd, ABN 68 005 830 802, AFSL 237058.

Greg Maguire

Principal

Greg Maguire is the founder and principal of Absolute Insurance, a family-run Perth life insurance broker he runs with his wife Steph. Greg has spent more than 20 years helping Western Australian families and business owners protect what matters most, with life insurance, income protection, TPD and trauma cover from Australia's leading insurers.

Before insurance, Greg was a primary school teacher, and that same patient, one-to-one approach is how he still works today. He takes the time to understand your situation, explains your options in plain English, and stands beside you and your family if you ever need to claim.

Greg holds an Advanced Diploma of Financial Planning from Deakin University and a bachelor's degree from Edith Cowan University. He is an active member of the local community through the Chamber of Commerce and Industry WA and Baldivis Rotary.

Greg Maguire is an Authorised Representative (No. 255354) of AD Advisory Services Pty Ltd, ABN 68 005 830 802, AFSL 237058.