Businesses do not grow and run by themselves. They require the skills and expertise of individuals to plan and execute business decisions that lead to the growth and expansion of the business. In fact, the success of a business can depend on the talent and expertise that the employee brings to the business. And in case the employee dies, the business can face substantial losses.
Due to the death of the key employee, the business can face substantial losses due to the reduction in profits. On the other hand, replacing the deceased employee also involves considerable costs. To cover these losses, the keyman insurance comes into play.
What is Keyman Insurance?
Keyman insurance policy is a life insurance cover that the employer takes to cover the life of the employee. The premium is paid by the employer, and if the employee dies during the policy term, the death benefit is received by the employer.
Who is a Keyman?
Consider a scenario, you run a profitable company with many stakeholders involved. You have certain employees who are very crucial for driving the business. Such persons are known as keyperson for your organization as they directly or indirectly drive the profits of your company.
Such keyperson is responsible for continued profitability, prosperity, and growth of the organization. Absence of such person may lead to decrease in revenue, profits, and delay in projects.
Examples of keyman include directors of the company, key project managers, key salespeople, and other people who have specialised skills that are valuable for the company.
Advantages of Keyman Insurance Policy
Whether it is a small business or a large company, the insurance has many advantages:
- Sum assured: In case of death of the employee, the company receives the sum assured that helps them deal with the loss and continue the business without any issues. The sum assured can also be used for recruiting and training the replacement of the employee.
- Financial help to the family: The sum assured received by the company can also be used to help the family of the deceased employee. The untimely demise of the employee can lead to financial stress on the family, so the company can use the sum assured to provide compensation to the family.
- Tax* benefits: The premium paid towards the keyman policy is considered a business expense. Such an expense is allowed a deduction from the taxable profits of the company under Section 37(1) of the Income Tax Act, 1961. Therefore, the taxable profits of the company are reduced, which in turn reduces the tax* liability of the company.
- Retention of employees: Keyman policy helps in boosting the morale of the employees as they feel that they are important for the business. The sense of belonging leads to higher productivity and improves the working of the business.
- Stability in the price of shares: A keyman policy helps in keeping the price of a company’s shares stable. The death of a keyman can lead to a drop in the share prices of the company, but the investors can be assured that the financial losses can be covered through the sum assured.
- Valuation of a company: If the company is being acquired, having insurance improves the valuation of the company. The buyers will have the assurance that they have a backup in the form of insurance to meet the expenses of the replacement of the key employee.
Keyman insurance is important specifically for businesses that depend upon a few individuals. The insurance helps to absorb the strain caused by the death of a key employee and helps to continue the business in a sustainable manner. The less keyman insurance cost and the host of benefits make keyman insurance an important aspect of a business. The keyman insurance quote will help you in knowing the premium that you have to pay towards the policy.
How Does Keyman Insurance Work?
The business might decide to insure the life of its key employees with a keyman insurance cover. The keyman policy is a pure term insurance plan. If the employee dies during the policy term, the death benefit is paid to the employer. There are no maturity benefits of the keyman insurance policy.
Things to Remember About Keyman Life Insurance
Here are some of the important things that you need to remember about the keyman policy:
- The keyman insurance policy is a pure term plan.
- The company cannot enhance the coverage of the plan by purchasing riders#.
- No loans can be availed against keyman insurance plans.
- The employee is not required to pay any premium towards the plan, and they will also not receive any death benefits under the plan.
A keyman insurance policy protects the business financially if the key employee of the company dies. Though the company cannot replace the skills and expertise of the employee with the policy, it can help the company deal with the loss and find a replacement for the employee. Therefore, keyman insurance is important, and it should be purchased after careful assessment of your business needs.