"Life insurance isn't meant for people who die. Life insurance is meant for people who live." Who said this doesn't really matter, what matters is that there is an important lesson to learn from this. The basic tenet of life is to indemnify the survivors against financial loss. Keyman is one such type of insurance.
Keyman can be defined as an insurance policy where the proposer as well as the premium payer is the employer, the life to be insured is that of the employee and the benefit, in case of claim, goes to the employer.
The Keyman here would be any person employed by a company having a special skill set or substantial responsibilities and who contribute significantly to the profits of the organization.
In case of an unfortunate eventuality to the keyman, two types of losses can arise
A] Loss arising from profit reduction for the company and
B] Costs for the company in replacing the keyman.
Various types of life insurance policies are available in the market today. Both endowment policy and term policy can be bought under keyman insurance. Some companies even offer ULIPs under keyman insurance.
[...] The purpose and need of insurance here have been discussed in three phases: 1. uses to individuals uses to a special group of individuals i.e to business or industry and 3. uses to society Uses to an individual Insurance provides safety and security: Insurance provides security and safety against the loss of particular event. In case of life insurance payment is made when death occurs or the term of insurance is expired. The loss to the family at a premature death and payment in old age are adequately provided buy insurance. [...]
[...] keyman insurance to the firm. In case of death of a keyman the firm gets money to cope up with the loss. 2]Any companies buying keyman insurance for its employees can claim a deduction for the premium paid for the policy as a business expense under section 37(1) of the Income Tax Act. Disadvantages of Keyman insurance 1]The amount on claim or maturity under a keyman insurance policy is not exempt if the company is paying the premiums. However incase the policy has been assigned to the keyman and the keyman is paying the premiums, then the claim/maturity proceeds are exempt. [...]
[...] If the proceeds of a "keyman insurance policy" are payable to the family members of the employee or the employer is contractually required to pay the proceeds to the family members of the employee, are the premiums paid on the policy by the employer deductible? Are the proceeds from the policy taxable? A5: No, the premiums are not deductible. The purpose of the policy is not to compensate the employer's loss of profits, but to protect the family of the employee. [...]
[...] It may be noted that the purchaser of keyman policy has various options relating to payment of premium i.e, the purchaser can pay a single premium or can pay premium spread over years of his choice.The purchaser has also a choice to select how the premium amount is to be invested by the insurance company. Such choice depends upon the purchaser's capacity of risk taking and future needs of funds. On the choice of the purchaser, the insurance company would invest either in gilt securities, money market instruments, equity or a mix of these. [...]
[...] Chp 6 Keyman insurance plans Protection plan Riders Accident and disability benefit rider Plan for high worth individuals and keyman Purpose of keyman cover Who can be a keyman? Benefits to the company Treatment of payments-for the company Chp 6 Keyman insurance plans A keyman is an individual who directly affects the profitability and the continuity of a business and whose absence may have an adverse effect on the health and continuity of the business. Keyman insurance is a life insurance policy taken by the company on the life of such person. [...]
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