Employee Benefits
What is Keyman Insurance?
Keyman Insurance is a life insurance policy taken by a company on the life of its key employee(s) whose skills, expertise, or leadership are crucial for the business. If the insured key person passes away or becomes permanently disabled, the company receives the insurance payout to cover potential financial losses.
Why is Keyman Insurance Essential?
- Protects Business Continuity – Helps the company recover from financial losses due to the loss of a key individual.
- Provides Financial Stability – Insurance payout can cover recruitment, training, or loss of business revenue.
- Enhances Credibility for Investors & Lenders – Shows financial preparedness in case of unforeseen events.
- Tax Benefits – Premiums paid may be tax-deductible (subject to local tax laws).
- Safeguards Against Sudden Leadership Gaps – Helps ensure smooth transition and succession planning.
Important Things You Should Note
- The company is the policyholder, beneficiary, and premium payer.
- The insured person must be a key employee – someone whose loss would financially impact the business.
- The sum assured is based on the key person’s contribution to the company’s revenue.
- The policy does not provide personal benefits to the insured person or their family.
- Can be customized with riders such as disability or critical illness coverage.
What is Covered & What is Not Covered?
Covered
- Death of the key person (natural or accidental causes).
- Permanent disability (if included in the policy).
- Compensation for financial loss to the company due to the key person’s absence.
- Succession planning costs such as hiring and training a replacement.
- Outstanding business loans (if the key person was personally guaranteeing them).
Not Covered
- Suicide within the first year of the policy.
- Termination or resignation of the key person (not a trigger for payout).
- Fraudulent activities or criminal acts leading to death or disability.
- Claims made after policy lapse due to non-payment of premiums.
- Pre-existing conditions (subject to policy terms).
Frequently Asked Questions (FAQs)
Who qualifies as a key person for Keyman Insurance?
Any employee whose loss would cause significant financial impact, such as the CEO, founder, key executives, top salespeople, or specialized professionals.
Can a company take multiple Keyman Insurance policies?
Yes, a company can insure multiple key employees based on their importance to the business.
What happens if the key employee resigns or retires?
The policy does not pay out, but it can be transferred or converted into an individual policy.
Can small businesses benefit from Keyman Insurance?
Yes, small businesses with few but critical employees can protect themselves from sudden financial loss.
Is Keyman Insurance tax-deductible?
It depends on the jurisdiction. In some cases, premium payments are tax-deductible as a business expense, but payouts may be taxable. Consult a tax advisor for details.
