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What is the Cost of a Keyman Insurance Policy?

Feb 23, 2022


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Keyman Insurance Policy

What is the Cost of a Keyman Insurance Policy?

Key Man Insurance – What is it?

A Keyman Insurance Policy is usually taken by a business or organisation to insure the key people in the organisation who have a specialized skillset or contribute significantly to the profits of an organisation. Simply put, a Keyman Insurance Policy is a Term Life Insurance Policy taken by a company to protect the key people in its organization, the loss of whom can be detrimental to the organization.

The death of such a key person can incur three types of losses to the company:

  1. a) Loss arising from profit reduction for the company
  2. b) Costs incurred by the company in replacing the keyman
  3. c) Loss arising from stock fluctuations in the event of a key person’s death

In order to protect the company against such losses, the company takes a Key Man Insurance Policy. The employer pays Keyman Insurance Policy Premiums and the life to be insured is that of the key person. Any benefit from a claim arising from a key person’s death goes to the company.

Thus, a Keyman Insurance Policy is taken out by a business to protect itself from financial losses that would arise from the death or extended incapacity of the Key Person of the business. A Keyman Insurance Policy, thus, insures the bottom line of your Company.

Who can be the Key Man of a Company?

As mentioned above, a Keyman is someone:

  • who may possess a unique skillset which is critical to the success of the Company or
  • who is responsible for the smooth functioning of critical activities of the business
  • who cannot be easily replaced in the short term

A Keyman of the company can be any of the following:

  • CEO of an organization
  • Directors of a company
  • Employees with specialized skill sets
  • Senior Employees like Project Managers or Key Salespeople

What is the Cost of Keyman Insurance Policy?

Following factors determine the Cost of a Keyman Insurance Policy:

  • Sum Assured: The most important factor determining the Keyman Insurance Policy Cost is the Sum Assured that the company opts for. Higher the Sum Assured, higher will be the Cost of a Keyman Insurance Policy.
  • **Type of Coverage and Policy: **Companies can get more comprehensive coverage by including provisions that require the Keyman Insurance Policy to pay in the case of critical illness or disability. This additional coverage will usually cover more serious conditions like cancer, or any physical disabilities. Naturally, the more situations that are covered by the policy, the higher will be the premium amount.
  • **Keyperson’s age:**As with any other Term Life Insurance Policy, the age of the key person plays a major role in determining the coverage amount and the Cost of Keyman Insurance Policy.

What are the Benefits of Keyman Insurance Policy for Businesses?

A Keyman Insurance Policy not only avoids financial losses for the company in the event of premature death but also has several other benefits.

  1. The premium paid for a Keyman Insurance Policy is considered a business expense. Hence, the business can claim tax deductions for the premium paid under section 37(1) of the Income Tax Act.
  2. A Keyman Insurance Policy protects the business from the loss of key person and the death benefit can be utilised to find a suitable replacement
  3. Death of a Keyman can mean that the banks recall the loans, thereby severely impacting business operations. Company can use the money received from the Keyman Insurance Policy to repay the loans.
  4. A Keyman Insurance Policy also helps to keep the company’s share price stable in the case of the death of the key person.
  5. A Keyman Insurance Policy is also very important for family businesses where the business solely depends on a few persons. In case of the untimely death of its key person, the insurance amount can be useful to ensure proper closure of the business or give them time to sustain it.

What are the Risks of Not Buying a Keyman Insurance Policy?

Many companies view a Key Man Insurance Policy as a luxury. But it is actually an asset and protects the business in the unfortunate event of the keyman’s death.

Smart business owners always think ways of securing their business from different risks ahead of time and a Keyman Insurance Policy is one of the tools to protect the business from the loss of the key person.

A Key Man Insurance is extremely important for large companies as loss of a few key executives can mean huge loss of income and reputation. A Key Man Insurance Policy will help soothe the nerves of investors, customers and shareholders as well.

On the other hand, small businesses have only a few key people on whom the entire business is dependent. As a result, even small businesses should also purchase a Keyman Insurance Policy to secure itself.

Why Buy Your Keyman Insurance Policy from Qian?

Qian Insurance specializes in insurance solutions for your business. We believe in spending time with customers and educating them about the nuances like what will be covered and what will not be covered under your policy.

Qian also has a 24/7 expert claims assistance team to help process your Keyman Insurance Claims in a right and timely manner.

Qian has tie-ups across multiple insurance companies like HDFC Life, ICICI Prudential, Bajaj Life, and Tata AIA to provide comprehensive Keyman Insurance Policies and competitive Keyman Insurance Quotes to our customers. Hence you can also request multiple Keyman Insurance Quotes and select the best fit for your organization.

Request a Quote today from Qian