What is Key man Insurance:
Key man insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.
Key man insurance is also referred to as key person insurance or key employee insurance.
Who can be a Keyman?
Anybody with specialized skills, whose loss can cause a financial strain to the company are eligible for Keyman Insurance. For example, they could be:
Plans Allowed under Key man Insurance:
Objective Of Key man Insurance (KMI):
The objective of keyman Insurance is to protect the company from the adverse financial effect by the Key Employee or Key Director’s death by making funds available to the company in his absence. The company’s progress and profit, usually depends upon the vital decision or technical expertised skill, knowledge, entrepreneurial vision of its Key Director or Key Employee, particularly in this competitive Globalised marketing Environment.
Today companies expansion diversification, and setting up policy depends upon its far sighted vision, decision, technical know-how of the Key Director and Key Employee and that’s required to be secured by purchasing Key man Insurance for making funds available for promoting, recruiting in the absence of Key-man. This policy is specially purchased by the company (both Pvt. and Ltd. Companies.) for the life of its most important Key person.
Benefits to the Company:-
Eligibility for keyman insurance:
The ‘keyman insurance (KMI) is allowed to the employee, if he satisfies the following condition;
Factors to be considered for insurance cover on key-man’s life.
Keyman Insurance proposal requirements:
4. Key man Questionnaire is to be completed in the persons hand format and the same is to be signed by the authorised person under the seal of the Company
5. Copies of I.T.returns of the Co. for proceeding 3 yrs
6. Consent for the endorsement to be placed on the policy
7. Revised Key Man Questionnaire annexed is to be attached.
The S.A. under key man insurance can be decided by using the following methods:-
10 times of the keyman’s compensation package (total salary + annual bonuses of a regular nature and paid a fixed percentage of salary + various other perquisites such as furnished houses, utility bills, car and commission out of net profit) The notional value of perquisites is taken as 30% of the gross annual salary.
Note:- no key man insurance (KMI) can be issued in case of company’s profits/ turnover is declining, unless there are very special circumstance.
Max. S. A. in case of private Ltd. Companies or closely held public limited companies:
(i) no. of shareholders/employees- 10 or more
(ii) max .S.A – to be treated at par with public Ltd. companies
(iii) no. of shareholders/employees – more then 5 but less then 10
(iv) max .S.A. – 3 time the last 3 yrs average net profit(before tax)
Max S.A. under KMI for the recently established companies in case of audited P&L accounts are present.
Key man insurance to employee of partnership firms:-
3 times of average gross profit of 3 year. Or
5 times of average net profit of 3 year, whichever is lower.
Income tax rules :-
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The above is the product summary giving the key features of the plan. This is for illustrative purpose only. This does not represent a contract and for details please refer to your policy document.
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