Key-man Insurance & Group Life Insurance

Some people are vital for the survival of your business. A key-man insurance plan is a term life insurance plan for an individual with a specialised skill, knowledge or business acumen, say a director, founder member, project manager or sales person.

It makes sense to insure against the unfortunate event of their untimely demise. This is because the company may face business/financial loss in case of sudden death of such valuable employees. It is here that Keyman insurance comes into play. The object of Keyman insurance is to cover the life of Key men(or women) for a monetary value so that in case of untimely death of such Keyperson(s), the loss to the firm is recouped.

Keyman insurance can also be used to cover the partners in a partnership firm.

In case a keyperson quits and joins another firm, there are multiple options:

  1. The first company (employer) can stop paying the premiums and allow the policy to lapse.
  2. It may continue paying the premiums and collect the proceeds on a claim arising.
  3. The policy could be transferred to the new employer of the Keyman on terms mutually agreed upon by both the companies.
  4. It can be assigned in favour of the life assured / keyman.

Eligibility Criteria

  1. The 'key-man' should hold less than 51% of the company's shares.
  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 shares.
  3. Some proof of the critical role that the proposed life (the Keyman) plays in the business of the company, is required.
    The maximum sum assured for Keyman insurance is lower of:
  1. Ten times the keyman's annual compensation package.
  2. Three times the average gross profit of the company for the past three years.
  3. Five times the average net profit for the past 3 years.

Keyman insurance is normally not issued if a company's profit or turnover is declining, or if the company is loss making.

The premium paid will be treated as business expenses and the company would save 30% plus surcharge on every rupee of premium paid for such a policy as per current tax law.

The more generic Group life cover is Group Term Life. You can avail life insurance for all your employees with group life cover. This provides some financial security to all your employees families, and makes your firm a better place to work.

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