Key Man Insurance- All You Have To Know | MoneyMindz

By | 08/06/2018
Insurance Policy Financial Advisory | MoneyMindz

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What is a key person insurance policy?

It is an insurance policy where the proposer and premium payer is the employer, the life to be insured is that of the same employer’s key employee (Keyman) and in case of a claim, the benefit goes to the employer.

A Keyman is a term distinctively used for an executive or essential employee who is core to the operation of the business insurance and his absence, disability or death is disastrous for the organization.

Who is a Keyperson?

An essentially imperative person who brings large revenue to the firm has special skills and expertise and is irreplaceable for a significant amount of time is a Keyperson. The organization falls down in his/her absence.

Purpose of Keyman Insurance

The death, disability or absence of a key person of a small company could result in the collapse of that business. The Key person insurance ensures the survival of the company if the Keyperson is no longer available to run the organization. It provides cash flow to help the organization continue and make money in case the Keyperson becomes unavailable.

A Keyman Insurance is a “Life insurance” for an individual who is so crucial to the company that the company will sink in his/her absence. This is not to be confused with family or personal life insurance. If you a family to take care of, purchase a personal life insurance cover.

Why should you purchase it?

Young people never even consider that they are as vulnerable to death as any other individual. Hence, they neglect buying insurance of all kinds. The same holds true for Key person insurance. By the time one realizes this, it would be too late. Hence, avoid procrastinating and go purchase Key person insurance right away.

Eligibility criteria

  1. The “Keyman” has to hold company shares less than 51%.
  2. A total number of shares held by Keyman and family has to be less than 70% of the company shares.
  3. Evidence has to be provided that the proposed life indeed plays a significant role in the firm.
  4. Has to be the Managing Director/key Sales or Key Project Manager/Person with Specific Skills; essentially an imperative person without whom the firm can’t function properly.

Categories of loss covered by Keyperson Insurance

  1. Loss related to an increased amount of time when a Keyperson is not able to work, but is alive.
  2. Insurance for protection of profits.
  3. Insurance to protect shareholders and partnership interests.
  4. Insurance for any individual involved in guaranteeing business loans and banking facilities.

What if a Keyman or Key woman quits the company?

  1. The employer who has bought the premium can quit paying the premiums, thus resulting in the lapse of the policy.
  2. It may continue paying premiums and collect the proceeds on a claim arising.
  3. The policy could be given to another employee upon mutually agreed terms and conditions.
  4. It can be assigned in favour of the life assured Keyperson.

Perks of Keyperson Insurance

  1. Protects against business risk in the unfortunate event of the death of the Keyperson.
  2. Premium paid will be treated as a business expense and the organization saves 30% surcharge on each rupee of premium according to current law.
  3. The untimely demise of an essential person for the business can disrupt the normal functioning of the organization. The insurance money guarantees loan repayment in case of the Keypersons death.
  4. The Keypersons morale is boosted and he feels important. This sense of belonging boosts productivity.
  5. It helps maintain the market price of the company’s shares stable when the Keyperson dies.
  6. Company valuation is protected.

How much does Keyperson Insurance cost?

The cost is dependent on various factors such as:

  1. Age, gender and health– The older you are and the more pre-existing health problems you have while purchasing it, the more you’re your premium will cost you.
  2. Structure and size of the firm– The higher the value of the firm and the contributions it receives from the “Key person”, the larger amount of coverage is needed and higher the premium.

Conclusion

When a man is the sole breadwinner of the family, it is imperative for him to get a life insurance so that in case of his death, his family can cope with the loss financially. Similarly, when there is an important person for the company, he needs to be insured as his death puts the company at loss.

Get the information you need in order to find the best life insurance plan for you and your family. Give A Miss Call On 022-62116588

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