Keyman Insurance
Keyman
Insurance
For Training Purposes & Internal Circulation only
Events Impacting Businesses
Small Business Survey
*
*Source: http://www.todayonline.com/business/sme/key-business-continuity
https://timesofindia.indiatimes.com/city/mumbai/SAP-India-head-dies-after-heart-attack/articleshow/5146999.cms
http://www.livemint.com/Specials/bwyIvT5Oe7Ms55tYbbbbtI/Steady-rise-sudden-death.html
https://timesofindia.indiatimes.com/city/mumbai/rare-dengue-linked-syndrome-claims-34-year-old-bank-of-america-md/articleshow/60417075.cms
http://www.deccanchronicle.com/entertainment/bollywood/300716/rajjat-barjatya-ceo-of-rajshri-media-passes-away.html
For Training Purposes & Internal Circulation only
Impact of sudden death
Creditor Employee Customer
• Loss of creditor’s • Uncertainty regarding • Loss of confidence,
confidence, affecting fresh the future of the business increased risk of
credit inflow defaults
• Employees lose
• Pressure to repay confidence leading to • Loss of customer
outstanding credit/over attrition connected to Keyman
draft - affects business • Decrease in productivity • Clients may drift away
operations
due to uncertainty
• Adapt wait & watch
• policy
?
Uncertainty
about future of
business
Reduction in Reduction in
Working capital Working capital
For Training Purposes & Internal Circulation only
Impact of sudden death
▪ Finding a replacement, usually, means incurring
new costs, higher salary and training
▪ The company would also have to absorb the
costs of mistakes that such a person would
invariably make
Replacement
+
cost
Requirement of
Lumpsum?
Reduction in
Working Capital
For Training Purposes & Internal Circulation only
Possible Solution Funds from…
Current Profit
Locks up profits and therefore impacts credit
worthiness
Borrowing
Creates a liability for repayment with interest –
impacts revenues of the firm
Uninsured sinking fund
? Isn’t of much use if the event happens before
a sufficient fund has been built up
Insurance
Most suitable solution because it preserves current
reserves, does not create a loan liability and provides
the exact amount of money as and when required by
the Company in the event of death
For Training Purposes & Internal Circulation only
The Benefits of Term Insurance
□ The company creates a large asset on Day 1 (buying a “Pure Term”
Plan) for itself by paying a small premium
□ The firm’s credit standing is not a factor in obtaining the money,
even though one of the key profit maker/s has died
□ The competitors wont be able to take advantage of the situation
caused by the death of the Key person.
□ Mental and emotional comfort comes with adequately
insuring major financial risks
□ Section 37(1) Act of the Income Tax Act of 1961 provides that any
expenditure laid out or expended wholly and exclusively for the
purposes of the business or profession, shall be allowed as a
deduction in the computation of income from the business or
profession.
For Training Purposes & Internal Circulation only
What is Keyman Insurance?
An insurance policy taken out by a business to compensate
the financial losses that would arise from the death or
extended incapacity of the key person of the business.
Keyman Insurance is like insuring the bottom line of your
income statement.
For Training Purposes & Internal Circulation only
Keyman
Who isInsurance
a Keyman?
Keyman is one who…
▪ May possess a unique skill or talent critical to the
success of the business
▪ Facilitates smooth functioning of critical activities of the
business
▪ Cannot be easily replaced in the short term
The actual position of a keyman in a company's structure will vary and could
include directors, sales staff, project leaders or any other employees to whom
profits can be directly attributable.
For Training Purposes & Internal Circulation only
Eligibility Criteria For Firms and Employees
*
Firms, enterprises, companies and conglomerates
are eligible
If their balance sheets and profit and loss account
records prove that they have been profitable for the
last three consecutive years
*Based on Underwriter's Discretion
For Training Purposes & Internal Circulation only
Sum Assured Eligibility
Maximum Cover Calculation
Salaried Individuals Business Owners
* *
Age: 25 to 40 | 10 – 15 times Avg. Gross Profit | 3 times
Annual Salary
Avg. Net Profit | 5 times
Age: 41+ | 12 times Annual
Salary
* Based on Underwriters Discretion
For Training Purposes & Internal Circulation only
Keyman
KeymanInsurance
Insurance guidelines
Taxation
*
Premiums paid by the company for Key-man
Insurance are deductible under Business
Expenditures u/s 37(1)
Death benefit received is Taxable as business
income in the hands of company (the company
being the beneficiary)
* Prevailing tax laws would apply
For Training Purposes & Internal Circulation only
Keyman
KeymanInsurance
Insurance guidelines
Taxation - when assigned to insured
*
With Valid Consideration:
Consideration paid by Keyman will be taxable
in the hands of company as business income
*
Without Valid Consideration:
In absence of specific taxing provision, nothing
is taxable in hands of company, however
notional surrender value, if any, may be taxable in
the hands of Keyman employee
* Prevailing tax laws would apply
For Training Purposes & Internal Circulation only
Why is Keyman Insurance Important
A Keyman is responsible for continued profitability,
prosperity and growth of the organization.
The success of any business depends greatly on one
or more key persons because of their Leadership Have you planned
abilities, Experience and Technical expertise
to safeguard your
Absence of a Keyman may lead to decrease in revenue
business in his
and profits, loss of business and delay in projects. absence ?
The cost of replacement of a key employee due to
sudden demise is taken care off.
It is always difficult to replace a key man or train
another employee to lead the business in a short time.
For Training Purposes & Internal Circulation only
Disclaimers
• Please note only pure term insurance can be sold as a keyman insurance policy. For more details on risk factors, terms and conditions please
read sales brochure carefully before concluding a sale.
• This material belongs to Tata AIA Life Insurance Company Ltd. Any unauthorized use, reprint or circulation is prohibited. Strictly for internal
circulation & training purposes only
• Premiums paid under this plan are eligible for tax benefits under Section 80C of the Income Tax Act, 1961 and are subject to modifications
made thereto from time to time. Moreover, life insurance proceeds enjoy tax benefits as per
• Section 10(10D) of the said Act.
• Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Tata AIA
Life Insurance Company Ltd. does not assume responsibility on tax implication mentioned anywhere in this document. Please consult your
own tax consultant to know the tax benefits available to you.
• Tata AIA Life Insurance Company Limited (IRDAI Regn. No.110 • CIN: U66010MH2000PLC128403). Registered & Corporate Office: 14th Floor,
Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400013. Trade logo displayed above belongs to Tata Sons Ltd
and AIA Group Ltd. and is used by Tata AIA Life Insurance Ltd under a license. For any information including cancellation, claims and
complaints, please contact our Insurance Advisor / Intermediary or visit Tata AIA Life’s nearest branch office or call 1-860-266-9966 (local
charges apply) or write to us at customercare@tataaia.com. Visit us at: www.tataaia.com or SMS 'LIFE’ to 58888.
Beware of Spurious Phone calls and Fictitious/Fraudulent offers:
IRDA of India clarifies to public that-
• IRDA of India or its officials do not involve in activities like sale of any kind of insurance or financial products nor invest premiums.
• IRDA of India does not announce any bonus. Public receiving such phone calls are requested to lodge a police complaint along with
details of phone call, number.
Thank you
For Training Purposes & Internal Circulation only
