Advantages of keyman insurance to the firm

In case oI death oI a keyman the Iirm gets money to cope up with the loss.
ny company buying keyman insurance Ior its employee can claim a
deduction Ior the premium paid Ior the policy as a business expense under
Section 37(1) oI the Income Tax ct.
isadvantages of Keyman insurance
The amount on claim or maturity under a keyman insurance policy is not
exempt under Section 10 (10D) oI the Income Tax ct iI the company is
paying the premiums. However, in case the policy has been assigned to the
keyman and the keyman is paying the premiums, then the claim/maturity
proceeds are exempt under Section 10 (10D).
II the policy, aIter attaining surrender value, is endorsed to the employee,
then the surrender value/maturity value is chargeable to tax under Section
17 oI the Income Tax ct. This is because it is treated as 'proIit in lieu oI
salary' in the hands oI the employee.
s is evident, the demerits oI keyman insurance are more tax-oriented than
insurance-oriented. Which means that buying keyman insurance is still beneIicial
Irom the company`s point oI view.
This is primarily because oI the signiIicant role that a keyman plays in keeping a
company rolling. It pays to insure the keyman to protect the company Irom any
contingencies to the keyman.
lso, the policy is beneIicial Irom the keyman's point oI view. This is in case the
company decides to endorse the policy to the keyman. This can be done only aIter
a surrender value has been attained, which usually takes 2-3 years (depending on
the insurer).
In doing so, the keyman beneIits, by having an insurance policy in his name the
initial premiums oI which, have already been paid by his company.
nd although he might have to pay tax on surrender value, iI endorsed in the early
years when the surrender value is low, the tax liability oI the keyman is reduced to
a great extent aIter accounting Ior the premiums paid by his company.