Key-Person Cover: Business Continuity

Quick View

Why It Matters

The business typically owns the policy and pays premiums on the life of a key individual, subject to product and legal structure.

Cover should be supported by profit contribution, replacement cost, debt exposure and transition needs.

Tax treatment depends on the transaction date, governing income-tax law and facts. From 1 April 2026 the Income Tax Act, 2025 applies to current tax years, while earlier years follow transitional rules.

Decision Framework

Action Checklist

1. Identify key dependencies.
2. Quantify financial loss.
3. Obtain board approval.
4. Review policy ownership.
5. Document accounting treatment.
6. Reassess after role changes.

Practical Example

Evidence to Keep

• Key-person assessment.
• Board minutes.
• Policy and proposal.
• Employment or service records.
• Accounting memo.
• Current tax advice.

Warning Signs

How to Review

Separate insurance funding from succession. Cash cannot replace access, authority or customer relationships without a transition plan.

Tag tax analysis by income period because the 1961 and 2025 Acts coexist for transitional matters.

Record the product, policyholder, insured interest, event, amount, contractual trigger and decision required. This prevents marketing language from replacing the actual contract.

Rules, tax law, insurer processes and product terms can change. Use the current issued document and official source rather than a historic comparison table.

Deeper Review

Insurance decisions should be tested in the sequence of insured event, contractual trigger, exclusion, limit, evidence and settlement. A broad product label cannot answer a specific claim or servicing question.

Use the issued schedule, complete policy wording, proposal, endorsements and current insurer communication together. Marketing pages and comparison summaries do not replace the contract.

Every financial example should distinguish headline cover from usable benefit after co-pay, deductible, sub-limit, depreciation, waiting period, outstanding loan or policy-specific condition.

Keep a dated file of premium receipts, service requests, claim notices, queries, responses and grievance acknowledgements. A missing timeline makes even a genuine complaint harder to resolve.

Where the issue involves medical judgement, professional liability, governance, tax or succession, obtain advice from the appropriately qualified professional before taking an irreversible step.

Life-policy analysis should separate protection, savings, surrender, assignment, tax and succession. One product can produce different outcomes under each event.

For transactions from 1 April 2026 onward, tax analysis should identify the applicable Income Tax Act, 2025 provisions and preserve transitional treatment for earlier years.

Scenario Test

A useful comparison should start with the exact insured risk, not the product name. Two policies with similar labels can differ in trigger, deductible, waiting period, territorial scope, claims-made treatment, exclusions and the documents required before payment.

Before purchase or renewal, prepare a one-page decision sheet showing premium, insured amount, major exclusions, benefit limit, co-pay or deductible, waiting period, renewal risk, cancellation terms and complaint route. This makes later changes visible.

At claim or service stage, ask the insurer for a written response that identifies the clause, fact and calculation used. A generic status such as pending, non-payable or documents insufficient does not explain what must be corrected.

The evidence file should preserve both source documents and transmission proof. A valid invoice or proposal is less useful if the policyholder cannot prove when and how it reached the insurer.

Where an intermediary was involved, separate the intermediary’s representation from the insurer’s issued contract. Both may matter, but they support different questions and remedies.

Life-policy decisions should be modelled under death, survival, surrender, paid-up status and loan scenarios. One maturity illustration cannot represent all outcomes.

Tax analysis should identify the date and tax year because the Income Tax Act, 2025 applies from 1 April 2026 while earlier periods remain governed through transitional provisions.