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Key protection against the risk of financial consequences to your business

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Key Person Cover

This is protection against the financial consequences to a business that would otherwise result from the death or serious illness of someone who (normally) is employed by the business. Effectively, it is loss of profits insurance.

The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.

KEY PERSON COVER

A key person could be defined as “anyone with specialist skills or knowledge, or with particularly important areas of responsibility, whose loss to a business would adversely effect its profitability”.

Such a person cannot easily or quickly be replaced and, whilst it is said that no one is irreplaceable, a business can suffer significantly during the time that it takes to find that replacement.

Key person cover is designed to give businesses a cash injection in order that profits are effectively maintained while the best replacement is found.

HOW MUCH COVER SHOULD BE PROVIDED?

A business needs to consider how much the loss of profits would be if the key person died or suffered a serious illness. They should also think about including costs such as, recruitment, training, and loss of goodwill.

They should also consider how long the cover needs to be in place for. How long will it realistically take to find a replacement?

Traditionally, a multiple of salary method has been used when deciding on the necessary amount of cover for a keyperson. This relies on two assumptions: firstly, that it will take the business a number of years to recover and, secondly, that the keyperson’s salary in some way reflects their impact on profits.

Between two and ten times salary is a guideline, so if the key person’s salary is £30,000 p.a. and the company believe that it will take five years to recover its position, then a sum assured of £150,000 is needed.

EXAMPLE OF KEY PERSON COVER

Company A’s gross profits= £5,000,000 p.a.

Company A’s total wage bill= £1,000,000 p.a.

The keyperson’s salary= £30,000 p.a.

Multiply the profits by the keyperson’s salary and divide the figure by the total wage bill:

(£5,000,000 x £30,000) ÷ £1,000,000 = £150,000

If this cover needs to be in place for 5 years, then our sum assured would be £150,000 x 5 = £750,000

WHAT SHOULD THE TERM OF THE PLAN BE?

This depends on the business and the keyperson. Term assurance plans would be more suitable where:

Tax relief on the contributions is required.

  • The keyperson may not remain key in the future.
  • The keyperson is working on a project.
  • The keyperson will be key through to their retirement.
  • The keyperson may not stay in the business long term.

It is not uncommon for short term plans of say five years to be set up on a renewable basis.

A whole of life plan may be more suitable if the keyperson is an owner of the business.

HOW SHOULD THE PLAN BE SET UP?

Whether its life cover, critical illness cover or permanent health insurance that is needed on the key person, it is the business that will want to receive, and therefore control, the benefits. Key person plans are therefore set up on a life of another basis.

WHAT ABOUT UNDERWRITING?

As with all life of other plans, insurable interest will need to be shown. The business will need to be able to demonstrate that the level of cover is reasonable in relation to the contribution that the key person makes to the profits of the business.

WHAT IS THE TAX SITUATION?

If a term plan has been affected, then HMRC may allow the company to obtain tax relief on the contributions if:

  • There is an employer/employee relationship between the life assured and plan owner.
  • The plan is to meet loss of profits only.
  • The plan’s term is no more than 5 year
  • The proceeds of any plan that has obtained tax relief on the contributions will be taxable as a trading receipt.

We advise businesses taking out any form of key person insurance to speak to their local Inspector of Taxes to clarify their individual tax situation.

Help take control of your future - The benefits of Power of Attorney
A serious accident or an illness that requires a lengthy stay in hospital, even intensive care, can have long lasting physical and financial effects, including an emotional impact on you and your family.
#torbayfinancialservices
#lpa
#futureproofing
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...

Help take  control of your future - The benefits of Power of Attorney
A serious accident or an illness that requires a lengthy stay in hospital, even intensive care, can have long lasting physical and financial effects, including an emotional impact on you and your family.
#torbayfinancialservices
#lpa
#futureproofing
#keepingitlocal
#financialadvice

HELP TAKE CONTROL OF YOUR FUTURE –
THE BENEFITS OF POWER OF ATTORNEY

A serious accident or an illness that requires a lengthy stay in hospital, even in intensive care, can have long lasting physical and financial effects, including an emotional impact on you and your family.

In situations where you are at their most vulnerable it is important to understand what can be done in advance of these situations because you may not have the capacity to deal with your personal affairs. In more serious cases you may not be able to make decisions regarding medical treatment yourself.

It is helpful to be aware of the benefits of a Lasting Power of Attorney (LPA), which allows individuals to manage their approach to handing control to friends, family or a professional attorney. The LPA allows an individual to appoint an attorney to make certain decisions on their behalf in specific circumstances and gives them the option to specify when they wish to grant that control.
There are two different types of LPA: property and affairs, and personal welfare.
...

HELP TAKE CONTROL OF YOUR FUTURE –
THE BENEFITS OF POWER OF ATTORNEY

A serious accident or an illness that requires a lengthy stay in hospital, even in intensive care, can have long lasting physical and financial effects, including an emotional impact on you and your family.

In situations where you are at their most vulnerable it is important to understand what can be done in advance of these situations because you may not have the capacity to deal with your personal affairs.  In more serious cases you may not be able to make decisions regarding medical treatment yourself.

 It is helpful to be aware of the benefits of a Lasting Power of Attorney (LPA), which allows individuals to manage their approach to handing control to friends, family or a professional attorney.  The LPA allows an individual to appoint an attorney to make certain decisions on their behalf in specific circumstances and gives them the option to specify when they wish to grant that control.
There are two different types of LPA: property and affairs, and personal welfare.

We will be here to answer those burning questions 🔥

So introducing Question of the Week.

HOW MUCH PER ANNUM DO RETIRED PEOPLE NEED?

According to Which?Money research (2018) by Paul Davies the average annual spend for a retired couple is ......................

£26,000

That is for a couple enjoying a 'comfortable' retirement. This covers all the basic areas of expenditure and some luxuries, such as European holidays, hobbies and eating out. Aiming for this level of income will provide a good platform for your retirement.
...

DO YOU KNOW A MILLENNIAL?
Then get the conversation going, talk to them about their future 🔮, what they feel? In years to come they will be thankful.

Paul our adviser will be more than happy to offer a free initial meeting to answer today's questions for all their tomorrow's

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...

DO YOU KNOW A MILLENNIAL?
Then get the conversation going, talk to them about their future 🔮, what they feel? In years to come they will be thankful.

Paul our adviser will be more than happy to offer a free initial meeting to answer todays questions for all their tomorrows

#torbayfinancialservices
#babbacombestyle
#millennial
#startyourfuture

DO YOU KNOW A MILLENNIAL? BORN BETWEEN 1980 AND THE TURN OF THE MILLENNIUM? Then get the conversation going, talk to them about their future, what they feel? in years to come they will be thankful.

Paul our adviser will be more than happy to offer a free initial meeting to answer today's questions for all their tomorrows.

Millennials face considerably greater challenges than their parents when it comes to providing for their retirement. But this group, which comprises those born between 1980 and the turn of the millennium, are not being told about the
scale of the savings mountain they must climb.

About the Research
The Generation Lost research was delivered
in three stages.

– A 30-question survey was published
online and open for responses between
July – September 2015. Over 1200
Millennials responded from the UK,
USA, Japan, Australia, Brazil and the
Netherlands.

– Interviews were carried out with a
number of Millennials from each of the
6 countries via telephone or video call.
Their reflections on the survey findings
are included in this report.

– A number of finance professionals and
academics from around the world were
invited to reflect on the survey results
and to consider their views on the future
direction of the insurance industry.

www.bnymellon.com/_global-assets/pdf/our-thinking/generation-lost.pdf
...

DO YOU KNOW A MILLENNIAL? BORN BETWEEN 1980 AND THE TURN OF THE MILLENNIUM? Then get the conversation going, talk to them about their future, what they feel? in years to come they will be thankful.

Paul our adviser will be more than happy to offer a free initial meeting to answer todays questions for all their tomorrows.

Millennials face considerably greater challenges than their parents when it comes to providing for their retirement. But this group, which comprises those born between 1980 and the turn of the millennium, are not being told about the
scale of the savings mountain they must climb.

About the Research
The Generation Lost research was delivered
in three stages.

–  A 30-question survey was published
online and open for responses between
July – September 2015. Over 1200
Millennials responded from the UK,
USA, Japan, Australia, Brazil and the
Netherlands.

–  Interviews were carried out with a
number of Millennials from each of the
6 countries via telephone or video call.
Their reflections on the survey findings
are included in this report.

–  A number of finance professionals and
academics from around the world were
invited to reflect on the survey results
and to consider their views on the future
direction of the insurance industry. 

https://www.bnymellon.com/_global-assets/pdf/our-thinking/generation-lost.pdfImage attachmentImage attachment
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