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The Keyman Insurance Policy and its Advantages

Employees are the most crucial asset to a company. Be it a small-scale or a large-scale industry, skilled employees are valuable to all. It is impossible for any kind of organization to work efficiently and grow without proficient labor. This necessitates the need for an organization to insure itself against any loss that might occur in case of the loss of such employees. This is where the Keyman Insurance policy comes to play.

What is the Keyman Insurance policy?

Keyman policy is the policy wherein the employer is the proposer as well as the premium payer. The life insured under this policy is that of the employee but the compensation in case of the loss of the insured is paid to the employer.
Wondering what kind of losses can the death of an employee cause to the company? Here’s the answer:

  • The death of an efficient employee might lead to profit reduction for the company.
  • The company will have to spend money on the replacement of the keyman.

If the company has the keyman insured, the sum insured is paid to the company on the death of the employee. The sum received by the company is quite large and sufficient for the company to easily and smoothly overcome any losses and also employ new executives as a replacement. In case the insured survives the tenure of insurance the company is not liable to receive any kind of compensation or sum insured.

Who can be considered a keyman?

A keyman can be any employee of the company with special skills and important responsibilities of the company. The employee to be insured under this policy should contribute significantly to the profits of the company and whose loss might cause a financial strain to the organization. For example, Directors of the company, key project managers, etc. can be considered as keymen.

How can the Keyman Insurance policy be used?

The sum insured received against the policy can not only be used to hire and train new personnel but also for various other purposes too. It can be used to settle loans, offer salary continuation to the spouse of the lost, and also fund executive compensation plans.

Advantages of the Keyman insurance policy

Here are a few advantages of the policy:

  • The company receives compensation against the loss of the employee which helps it to carry out the business operations unhindered without much difficulty.
  • Helps the company to avail tax benefits as the premium paid by the company is subject to satisfaction for the assessing officer. Under Section 37(1) of the Income-tax act 1961, the premium for keyman insurance is considered a business expense.
  • It becomes easy to recruit and train new employees, handle debt and liquidation of the company, and even successfully sell the company when a business is covered by keyman insurance.
    Keyman insurance makes many difficult decisions simple. It is of utmost help in the case of a family business that is dependent on a few individuals. It assists a company to gain a little more resistance against financial strains and helps them to sustain in a better way.

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