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Here's how you can save on tax with key-man insurance policies

by , 11 November 2014
A key-man policy is a life cover you take out on the life of employees or directors who play an essential role in your business. If that particular person dies, the insurance you took out on their life will ensure your business continues without experiencing a down turn.

Your business is the beneficiary of this policy.

Here's how this policy reduces your company's tax bill too...

 
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Save money on your company's tax bill with a key-man insurance policy 

You can claim a special tax deduction on your key-man policy premium.
 
If you take out an insurance policy on the life of an employee or life of a director/member, you can deduct the premiums (cost of the insurance policy) you paid from your company's income. 
 
To qualify for this deduction:
 
The policy must belong to your company; and
Your company must be the beneficiary (Section 11(w) of the Income Tax Act).
 
The premiums your company pays can, however, be deducted and the premiums can form part of the director's 'remuneration'.
 
But, if your company takes out a policy in the name of one of its directors or employees and the policy isn't your company's property, you can't deduct the premiums.
 
There you have it. Not only is a key-man policy a great way to safeguard your company's productivity, it's also a great way to reduce your company's tax bill.
 
For more on tax deductions and insurance, check out the Practical Tax Loose Leaf Service
 

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