Keyman Insurance comes in to protect your business and your family.
What Is Key Person Insurance?
Keyman insurance can be defined as an insurance policy where the proposer is a company, the premium is paid by the company, the claim also goes to the company, but the insured is an employee. This employee discharges significant responsibilities, contributes immensely to the company profits and is therefore crucial to the working of the business.
This employee is given the term ‘keyman’, though the insured can be a woman as well. The purpose of keyman insurance is to cover the life of the keyman, so that in the event of his/her untimely death, the company can recoup the financial loss from the sum assured.
As said earlier, the keyman is a key functionary and his passing will likely result in a financial strain on the business. This cover is intended to help the company regain from the stumble and continue in a sustainable manner.
Benefits of Keyman Insurance
- Be it a small business or a large company, keyman insurance provides quite a few advantages:
- In case of death of the employee, the company receives the sum assured to cope with the loss and also ensures business continuity without any hiccups.
- The policy contributes to the company’s tax planning* – Premium allowed as business expense under section 37(1) of Income Tax Act, 1961, subject to satisfaction of the assessing officer.
- Options such as recruiting and training capable employee replacements, handling debt and liquidation of the company, or even successfully selling the company are all within reach when a business is covered by keyman insurance.
- Keyman insurance is important, particularly for family businesses that are highly dependent upon a few individuals. It helps ensure that the business can absorb the financial strain of an early death and continue sustainably.
- The low cost and ease of securing a keyman insurance policy makes this very important business decision a simple one.
How does Keyman insurance work?
- The business might decide to buy a Keyman insurance policy on its key employees. Only term insurance plans can be bought under Keyman insurance. The term of the policy is such that the policy expires when the employee retires. So, if the employee is aged 35 years when the policy is being bought and the retirement age is 65 years, the term of the policy would be 30 years.
- Alternatively, if the employee has a fixed employment term, the term of the Keyman insurance policy matches the employment tenure of the employee. If the employee dies during the term of the policy, Keyman insurance policy pays a death benefit to the employer. If, on the other hand, the policy matures, no benefit is paid as it is a term insurance plan.