Replacing a key person in any business takes time as well as money – and could cost the company valuable clients and income during the transition. Keyman insurance is a business insurance policy that companies can take to cover themselves against financial losses that can occur when they lose a key person within the company.
This can be through incapacity, critical illness, or death. Many companies often overlook Keyman insurance policy or they don’t even know that there is such a thing available in the insurance industry.
What is a Keyman Insurance Policy?
Keyman insurance policy is a business insurance policy in which the employer is the premium payer and also the proposer of the policy, the insured person is the employee and the benefits, in case if a claim is made, all goes to the employer.
The word key man represents any person employed by a company having substantial responsibilities or special skill set and who significantly contributes to the profits of that company.
How it works?
Companies takes out insurance policies on key person and pays all the premiums. In the event of the key man’s death, the company would receive the insurance payoff.
Who can you consider a key person?
The following people can be considered a key person in the organization, which include:
a. With their efforts, they help companies achieve the ideal sales figure and profits.
b. Help drive a business and give it a direction
c. Owners, directors, partners, senior managers, managers, operations managers, technical development and similar such individuals.
Who Needs Keyman Insurance Policy?
The keyman insurance policy is not so essential for large as well as international corporations. Also, this insurance policy is not required for companies that are fully operated by a single person without the help of some other staff members.
In small to mid-sized organizations, it is better to have someone insured by this policy to help businesses continue their operations as usual without closing their doors for good.
For small companies with partners, this policy is mainly designed to protect each partner. If a certain company depends absolutely on one or more of their employees, then it is better to have a key man insurance in place. Though, the policy will not replace the lost person, it will help in the smooth functioning of the business without any financial impact.
Key features of this key man insurance policy include:
a. Max and min age to enter into an agreement is 18 and 60 years
b. The company pays the premiums, which are non-deductible
c. The policy’s cash value may be availed by the business through withdrawal or loan, if needed
d. The death benefit can be used to find a replacement for the previous key employee
e. Only term policy can be taken under this insurance policy.
f. Any company buying this policy can claim deduction for the premium paid under the Income Tax Act.
h. Premiums paid by the company cannot be treated as perquisites in the hands of the key employee.
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Why buy a Keyman insurance policy?
Running a company successfully needs the combined effort of all the employees, and there are some employees who become indispensable. These key people in the company need to be insured, as they are the one who help organizations to run successfully. Keyman insurance policy is a very important aspect when you wanted to insure your company to run in an organized manner.