Keyman Insurance Policy : Coverage, Benefits, Income Tax Deductible, Eligiblity.

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Contents
  1. What is Keyman Insurance Policy?
  2. Who is a Keyman?
  3. Why should a Company purchase a Keyman Insurance Policy?
  4. What is the duration of a Keyman Insurance Policy?
  5. What is the Eligibility Criteria for a person to be considered a Keyman for the Company?
  6. What are Tax Benefits for a Keyman Insurance Policy?
  7. What is the Appropriate Sum Insured for a Keyman Insurance Policy?
  8. What happens to the Keyman Insurance Policy if the Keyman leaves the Company?
  9. What are the Benefits of a Keyman Insurance Policy?
  10. What are the documents required to purchase a Keyman Insurance Policy?
  11. Get a Free 1 Hour Consultation for your Keyman Insurance Policy!
  12. FAQS
  13. Testimonials

What is Keyman Insurance Policy?

A Keyman Insurance Policy, also known as Key Person Insurance, is an insurance policy purchased by the employer to secure the life of its key employee. 

The company receives the Sum Assured in case of the death of the Keyman. A Keyman or a Key Person is a person with special skills who contributes significantly to profits of the company.

The Company is the nominee and the Key Employee (Keyman) is the Life Assured in a Keyman Insurance Policy.

 
What is  Keyman Insurance Policy?

Who is a Keyman?

A Key Man is the major driving force behind a business and has unique skillsets which are invaluable and indispensable for the company's progress.

Loss of such a keyman would cause a financial strain on the company or a decline in the company's earning capacity.

In order to secure the company from the loss of a Keyman, the company can avail a Keyman Insurance Policy for such invaluable employees. Usually, Companies opt for a Keyman Insurance Policy for Company Directors, Key Salespeople, People with Specialised Technical Skills or Key Project Managers.

There can be multiple Keyman in the company and the company can avail a Keyman Insurance Policy for all of them.

Why should a Company purchase a Keyman Insurance Policy?

In today's times, employees are one of the most valuable assets of the firm. Some employees with rare skills, knowledge and technical skills are critical to the success of the company.

The death of a Keyman could result in the company suffering numerous losses as listed below:

  1. Loss of customers or sales attracted by the Keyman's ability
  2. Loss of Keyman's special skills and abilities
  3. Additional Cost of finding and training a suitable replacement
  4. Delay or Cancellation of future expansion projects
  5. Recall of Loans guaranteed by the Keyman
  6. Reduction in Credit Rating of the Company

Hence, it is extremely important for the company to secure itself by insuring the life of their key employees in case of their untimely deaths with a Keyman Insurance Policy.

The objective of a Keyman Insurance Policy is to help a business to recover from financial losses and make funds available in case of the untimely demise of the Keyman.

The proceeds from the Keyman Insurance Policy may help the company to recruit and train the replacements of the Keyman and offer compensation to the family member of the deceased in case of his/her death.

What is the duration of a Keyman Insurance Policy?

A Keyman Insurance Policy expires when upon the retirement of the employee. So if the retirement age of the employee is 60 years, the Policy Duration will be 20 years for a 40 year old employee.

What is the Eligibility Criteria for a person to be considered a Keyman for the Company?

An employee should basically fulfill the following 3 criterias to be considered as a Keyman for the Company:

  1. The 'Keyman' should hold less than 51% stake of the company he/she is working for*
  2. The total number of shares of the company held by the Keyman and his family together should be less than 70% of the Company's total Share Capital*
  3. Proof of the Employee's critical role in the business of the company is also required

* If the employee holds more than 51% stake or the company or the aggregate shareholding of the Keyman and his/her family members exceeds 70%, the eligibility of the cover will be worked out on the basis of Individual Income Proof.

What are Tax Benefits for a Keyman Insurance Policy?

The Tax Benefits for the Company under a Keyman Insurance Policy are as follows:

Tax Benefit on Premiums Paid:

Premiums Paid by the Company for a Keyman Insurance Policy are a tax-deductible expense. This lowest ha taxable profit for the company and lowers the tax outgo.

Tax Benefit on Death Benefit Received:

The Death Benefit received by the Company on the employee's demise is fully taxable at the existing tax rates.

In case the employee leaves the job, the employer might assign the policy to the employee. In that case, the employee specifies a nominee to receive the death benefit. The Death Benefir received would be added to the employee's income and taxed at the tax slab rates applicable to the employee.

What is the Appropriate Sum Insured for a Keyman Insurance Policy?

Various Insurance Companies have different criterias to decide the Sum Assured for a Keyman Insurance Policy.

Usually, the Sum Assured for a Keyman Insurance Policy is based on the below mentioned criterias:

  1. The Sum Assured will not exceed 10 times the annual compensation package of the Keyman, which includes Salary, Bonuses, and all other Perquisites.
  2. The Sum Assured will be lower than 3 times the average Gross Profit of the Company for the last 3 Calendar Years
  3. The Sum Assured will not exceed 5 times the Company's average Net Profit for the last 3 years

The lowest amount computed at on the basis of the above 3 methods will be the permissible Sum Assured for Keyman Insurance for the Company.

Also, if there is more than one Keyman in the company, the above amount has to be prorated in the ratio of that particular Keyman's compensation to the total compensation of all the keymen in the Company.
What is the Appropriate Sum Insured for a Keyman Insurance Policy?
What happens to the Keyman Insurance Policy if the Keyman leaves the Company?

What happens to the Keyman Insurance Policy if the Keyman leaves the Company?

On the Keyman leaves employment and the Company, the Employer can do the following things:

  1. Let the Keyman Insurance Policy Lapse by stopping premium payments
  2. The Employer can assign the Policy to the Employee's new company
  3. The Employer can continue paying the premiums and collect the Sum Assured if a claim arises
  4. The Keyman Insurance Policy can also be assigned in favour of the Keyman

What are the Benefits of a Keyman Insurance Policy?

A Keyman Insurance Policy has the following benefits:

Benefits of a Keyman Insurance Policy

Business Continuity: In case of the demise of the Keyman, the Company receives the Sum Assured which can help the company to hire a replacement and Business Continuity

Tax Benefits: The Premium paid by the Company to avail a Keyman Insurance Policy is a Tax-Deductible expense

Boosting Employee Morale: Purchasing a Keyman Insurance Policy helps in boosting the employee morale by displaying that the Company cares for him/her

Liability Management: If the Keyman has availed loans on the Keyman's life, his/her death may adversely affect the credit standing of the buinsess. A Keyman Insurance Policy can ensure loan repayment in such a case

What are the documents required to purchase a Keyman Insurance Policy?

Following documents are required to purchase a Keyman Insurance Policy:
  • Duly Filled and Signed Proposal Form with the Company as the Proposer
  • Keyman Questionnaire signed by the Authorised Person of the Company
  • Full Medical Report of the Keyman
  • IT returns of the Keyman for the last 3 years
  • Copies of the Memorandum and Articles of Association of the Company
  • A Board Resolution stating the Keyman’s name and the Sum Assured required on the Keyman’s Life. The Board Resolution should be signed by the Company’s Authorised Signatory
  • Duly Certified Copies of the Audited Accounts, Profit and Loss Statements and Balance Sheet of the Company for the last 3 years
What are the documents required to purchase a Keyman Insurance Policy?

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Qian is an experienced Insurance Broker for Keyman Insurance Policy with tie ups across top Insurance Companies. If you wish to purchase a Keyman Insurance Policy for your Company, you can get in touch with us at 📞 022-35134695 or E-mail us at support@qian.co.in or fill this Contact Form.

We, at Qian assure you of competitive quotes for your Keyman Insurance Policy and will aid you in purchasing the most appropriate Keyman Insurance Policy for your Company.

Get a Free 1 Hour Consultation for your Keyman Insurance Policy!

FAQS

Does Keyman Insurance Policy have any surrender value?

A Keyman Insurance Policy is basically a Term Insurance Policy with the Company being the nominee of the Policy. The Company receives the Policy Sum Assured only on the death of the Keyman during the Policy Term. The Company received no benefit if the Policy matures without the demise of the Keyman.

Testimonials

Average Customer Rating:

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Hemik of Qian is knowledgable, prompt and very professional - highly recommended. I had to claim for a critical illness under my health insurance policy and Qian’s assistance with the claims process and advice on how to deal with the insurer was invaluable.

Niyati Shah