What is Keyman Insurance?
Keyman Insurance is a legal provision that allows a business to buy insurance for its important employees. This insurance helps protect the business if a key employee passes away. These key employees are chosen based on their special skills or important roles in the company. Keyman Insurance is all about getting the right insurance policy to cover these key people.
Let’s understand with the Example:
Ashok Private Limited was a software company that hired Manish and Ajay with high salaries and sent them to the USA for special Artificial Intelligence training. The training cost more than Rs 5 Crore.
Sadly, Manish had a fatal accident, which caused a big financial problem for Ashok Pvt Ltd. Many clients who worked with Manish wanted to leave.
Luckily, Ashok Pvt Ltd had bought Keyman insurance for Manish’s life. When Manish passed away, they received Rs 5 Crore from the insurance. They also gave Rs 2 Crore as a goodwill payment to Manish’s family and set aside Rs 3 Crore to cover their losses.
Which plan can be sold under Keyman Insurance?
Keyman Insurance now exclusively offers Term Insurance. Previously, Saving-linked Policies were sold, but they have been discontinued.
Which type of firms can buy Keyman Insurance?
- Companies that are Public Limited or Private Limited, if key employees own less than 51% of the company and key people and their families together can’t own more than 70% of the shares.
- Partnership firms can get insurance that covers all partners.
- For businesses that are owned by one person (proprietary firms), they can’t get insurance for the owner or key employees
Sum assured under Keyman Insurance Policy
It’s usually recommended to get Keyman Insurance worth about 10 times your annual income or 3 times your gross profit, and at least 5 times your net profit. However, you can choose any amount that makes sense for your situation. Even new businesses or those not making a profit can benefit from Keyman Insurance.
Taxation of Keyman Insurance Policy:
All the premiums you pay for the insurance are considered as business expenses according to Section 37.
When you receive a claim amount from the insurance, it’s recorded as income for the company. However, the company can also make a goodwill payment to the family of the deceased person. This payment doesn’t affect the company’s taxable income, and it’s tax-free for the family.
Documents Required for Keyman Insurance Policy:
- Memorandum and Balance Sheet of the firm.
- 3 years ITR of firm and insured.
- Board Resolution from the firm seeking Keyman Insurance explaining how death claims will be handled.
- Keyman questionnaire justifying sum assured.
Every business should consider getting Keyman Insurance as a smart way to manage risks effectively.
If you encounter any problems with your Keyman Insurance Policy, don’t hesitate to contact Insurance Samadhan. Our team of experts is here to help and support your case with technical and legal assistance.
Conclusion
Keyman Insurance is a crucial tool for businesses to mitigate risks and safeguard their operations in the event of a key employee’s unexpected absence. This insurance can provide financial security and peace of mind to both businesses and their key personnel. It’s important for companies to understand the eligibility criteria, sum assured recommendations, and tax implications to make informed decisions when opting for Keyman Insurance. As we’ve discussed, the right insurance policy can be a lifeline for businesses in times of uncertainty, ensuring their continued success.
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