Keyman Insurance is a form of Life Insurance specially designed for businesses. The main idea is to replace the family or other loved ones with the company while the policyholder becomes the key male/female of the company. Thereby, this policy forms a significant part of a business. Below, we will discuss this insurance kind and understand its significance for business owners.
What Is Keyman Life Insurance?
Keyman insurance policy is about taking care of your company and its employees just like you would have done for your family via life insurance. The main idea behind this policy is that the owner must support the business and investment made on it by insuring their employees. That is, the Keyman will be the business owner or someone critical to the business functioning or foundation. The company will pay the premium and if anything happens to the Keyman, the company will receive the death benefit. Since the Keyman forms a very important part of the business, their absence or death can cause significant loss to the company both in terms of monetary and functioning. If a company has insured their employee, it can remain assured of getting the coverage. In case the employee survives the policy, then no money will be paid.
The key person can be anyone from the business owner, partner, or any important person who owns the responsibility of managing data, keeping records, evaluating accounts, forming clients, etc. In other words, a person who is matchless and holds the business’s major function together.
Why Do Business Owners Need This?
Employees are the major asset of every business. One who understands this can also understand the value of the Keyman insurance policy. By training your personnel, you are already investing time, money, and energy. Especially the value contributed to your business by its key personnel can never be undermined. Saying that there are certain important advantages businesses can have by investing in Keyman insurance:
- The business will receive the sum insured in case of the Keyman’s death.
- It will cover the cost of loss incurred due to the death of the employee.
- The company’s tax planning will be benefited for the premium will fall under the category of business expense as mentioned under the Income Tax Act section 37 (1) 1961.
- A Keyman-insured business will have an advantage over any non-insured business in terms of managing debt and liquidation, recruitment of employees, etc.
The coverage is vital for any business since the death of any major employee can cause an immense setback to the company eventually leading to multiple losses. Therefore the main purpose of the insurance is to help the company survive any such unfortunate incident, get through the losses, and gradually return to its normal functioning.
Risks Covered By Keyman Insurance
Keyman Insurance protects against different risks such as:
- To sustain profit
- To protect shares and/or partnership related profit
- To protect the rights of anyone involved in loans or banking facilities
The business owner can use the amount to pay investors, return debts, train and hire new employees, etc. In brief, the amount can save the business from acquiring immediate bankruptcy.
Conclusion
Keyman insurance is a vital part of any business either small or large.