Key Man Insuran

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Policies
 • Key man insurance is a life insurance policy that a
company kkkkpurchases on the life of an owner, a top
What Is Key executive, or another individual considered critical to the
business. The company is the beneficiary of the policy
Man and pays the premiums. This type of life insurance is also
known as "key man (or "keyman") insurance," "key
Insurance? woman insurance," and "business life insurance.“
• It is a provision allowed under law that an Employer can
insure its key employee to protect business interest of
firm in case of death of insured employee.
 • Key man insurance offers a financial cushion if the
sudden loss of a certain individual would profoundly
negatively affect the company's operations. The death
benefit essentially buys the company time to find a new
Understandi person or to implement other strategies to save (or shut
down) the business.
ng Key Man • In a small business, the keyman is usually the owner, the
Insurance founders, or perhaps a key employee or two. The main
qualifying point is whether the person's absence would
cause major financial harm to the company. If this is the
case, key person insurance is definitely worth
considering.
 Key man insurance can cover a company against a
range of risks. For example, it may provide:
Categories of • Insurance to protect profits—for example, offsetting
lost income from lost sales or losses resulting from
Loss the delay or cancellation of any business project
involving a key person.
Covered by • Insurance designed to protect shareholders or
Key Man partnership interests. Typically, this enables the
surviving shareholders or partners to purchase the
Insurance financial interests of the deceased person.
• Insurance for anyone involved in guaranteeing
business loans or banking facilities. The value of
insurance coverage is arranged to equal the value of
the guarantee
 • Public Limited and Private Limited Firms on
Which type key employees who are having less than 51%
shares and key person along with family can
of firms can not hold more than 70% share.
• Partnership Firms can have Partnership
buy Keyman Insurance on all partners.
Insurance? • Proprietary firms on key employees, firm can
not take keyman on proprietor.
 • Anybody with specialized skills, whose loss
can cause a financial strain to the company,
is eligible for Keyman Insurance. For
Who can be example, they could be: Directors of a
a Keyman? Company, key sales people, key project
managers, people with specific skills etc.
 Although there are no hard rules for calculating a key
Determining employee’s economic value, these guidelines may help:

the amount • Replacement value: The appropriate coverage could

equal the salary for the new employee minus the key
of Key man employee’s compensation; multiply the difference by the
number of years to get the new hire trained, plus any
Life applicable training costs.
• Business life value: Estimate the loss of your annual
insurance earnings if the key person were to die or leave, multiply
that by the number of years the key person would have
needed worked for you until retirement, and then discount that
earning stream to its present value.
• Maximum sum assured is limited to 10 times the
keyman’s compensation or 3 times the average gross
profit of past 3 years or 5 times the last 3 years’ net
profit.
Benefits to the Company
PROVIDES FINANCIAL SOME TYPES OF LIFE INSURANCE
PROTECTION THROUGH THE HAVE THE POTENTIAL TO
DEATH BENEFIT IF THE KEY ACCUMULATE CASH VALUE THAT
EMPLOYEE PASSES AWAY. THE BUSINESS CAN ACCESS
THROUGH POLICY LOANS AND
WITHDRAWALS.
YOUR BUSINESS CAN CONTINUE
TO PAY THE PREMIUMS AND
KEEP THE POLICY IN FORCE OR
SURRENDER THE POLICY IF THE
KEY EMPLOYEE LEAVES OR
RETIRES.
 All paid premiums are treated as business
expense under section 37.
Taxation of
All claims are treated as income in books of
Keyman the firm however firm can give an ex-gratia
Insurance payment to the family of deceased. So, it
nullifies the impact on income of firm and ex
Policy gratia payment on death is tax free in hand of
family.
Documents Required for Keyman Insurance Policy

Memorandum and Balance Sheet of the firm.

3 years ITR of firm and insured.

Board Resolution of firm seeking keyman insurance with clarity on how death
claim will be treated.

Keyman questionnaire justifying sum assured.

Thank You