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What is the Difference Between Keyman Insurance and Employer-Employee Insurance?

10-10-2022 |

You may be aware of the different types of life insurance policies, such as term insurance, whole life insurance, savings plans and so on. However, there are also other life insurance policies which are not commonly heard of. These are employer-employee insurance and keyperson or keyman insurance. This is because, at an individual level, we do not avail of these two policies for ourselves and our families; these insurance policies serve a different function.
 

Since both these types of life insurance plans in India are meant for a professional setting, they can often be confused with one another. However, they are two distinct policies, and there are certain points of distinction you should be aware of. Here is what you should know about keyman insurance policy and employer-employee insurance.
 

What is Keyman Insurance Policy?


Keyman insurance is a type of insurance policy where the employer is responsible for the policy proposal and the payment of the premiums while the life insured is the employee. If a claim is filed, then the benefits under keyman insurance will be paid out to the employer and not the employee.
 

Hence, the life insured is known as the keyman or keyperson since they possess certain skills or hold an important position which makes them indispensable to the organisation. Therefore, in the event of the key person's untimely demise during their professional journey, the company or the organisation may undergo two types of losses – due to the company’s profit reduction and the cost of replacing the keyperson.
 

With keyman insurance, a sum assured is paid out to the company if the keyperson passes away during their service. This sum assured is quite substantial as it has to cover any damages caused by the loss of business and also has to cover the hiring cost of a new key employee. Keyman insurance also has other functions, such as securing and settling the company’s loans and offering compensation to the spouse of the deceased keyperson apart from compensating the company’s losses.
 

What is Employer-Employee Life Insurance?


For having a group life insurance policy such as employer-employee life insurance, there should be a minimum of 10 employees whose life insurance details are present with the employer. The insurance cover works as a great incentive to motivate the employees, which can increase their productivity and help retain them in the company for the longer term.
 

Employer-employee life insurance is a life insurance cover that protects the interests of the employees. This policy is provided by the employer or the organisation and offers financial security to the employees in case of their untimely demise. In case of such an event, the life insurance coverage will offer financial security to the family members of the late employee so that they are able to sustain their livelihood in the absence of the earning member.
 

The employer-employee insurance is also known as group life insurance since it secures a group of employees under a single policy with equal coverage for each group member to protect and safeguard them. The premiums for the policy can either be paid solely by the employer or jointly by the employer and the employees. The employer can assign the policy to the employee if the latter continues their service for a specified period.
 

Keyman Insurance & Employer-Employee Insurance


There are some stark differences between keyman insurance and employer-employee insurance that most people do not know. Even though both insurance policies are meant to benefit businesses and the life insured under both policies is the employee, the type of benefits offered and the range of coverage will not be the same.
 

Tata AIA Life Insurance offers employer-employee insurance as well as keyman insurance policies that can help you secure your business as per your needs. Let’s take a look at points of distinction in both the policies below:
 


  • Persons Covered

    While group life insurance covers a group of employees under the same organisation and offers equal benefits to all members, keyman insurance covers only the keyperson who is the life insured. The employer-employee coverage is extended to all the members under the policy, which is not the case for the keyman insurance policy.

  • Sum Assured

    The maximum sum assured for keyman insurance could be 10 times the salary of the keyperson, 3 times the last 3 years’ average gross profit or 5 times the net profit of the last 3 years. The sum assured of a group life insurance plan is standard and can be determined by the employer considering the basic insurance needs of the employees.

  • Scope of Policy

    The keyman insurance policy has a greater sum assured as opposed to an employer-employee policy since the losses caused by the death of a keyperson can result in huge losses to the company. But under the employer-employee policy, the death benefit paid covers the loss of income to the late employee’s family. If the policy is assigned only to the employee until the policy term, the employee may get the maturity benefit on survival.

  • Tax* Benefits

    The payment of premiums under keyman insurance is considered as business expenses under Section 37 (1). Hence, only the policy proposer can claim tax* benefits as per the Income Tax* Act provisions. But employer-employee insurance also allows employees to claim tax* deductions on the premiums paid u/s 80C if the premiums are jointly paid by the employer and employee. Also, the death benefit is tax*-exempt under Section 10(10D) of the Income Tax* Act.

Conclusion


Just like life insurance secures the financial future of your loved ones, business insurance is meant to protect your organisation or enterprise from any potential losses in the future. Since employer-employee insurance and keyman insurance are two different types of business insurance, you can always choose which type of insurance your business requires. 

L&C/Advt/2022/Oct/2422

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Can I have both types of insurance policies for my business?

If you have at least 10 employees in your company, you can have employer-employee life insurance for them. And if there is another business partner, director or co-founder whose role is crucial for the company’s growth, you should also have keyman insurance.

When can the employee avail of the maturity benefits on the employer-employee insurance?

An employee can get the maturity benefit on the employer-employee insurance if the insurance policy offers maturity benefits and if the employee survives the policy term. Another clause is that the employer should assign the policy to the employee who will solely continue paying the premiums through the premium payment term.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.