Plans Allowed

Suitability

Key Man is the life Insurance, taken by a Company, on the life of an Employee Director whose services have significant effect on the profitability of the company and whose premature death will adversely effect its profitability, stability and progress. There can be even more than one Key man in a company.

Objective

The object of key man Insurance is to protect the company from the adverse financial effect by the Key Employee or Key Director’s death by making funds available to the company in his absence. The company’s progress and profit, usually depends upon the vital decision or technical expertise skill, knowledge, entrepreneurial vision of its Key Director or Key Employee, particularly in this competitive Globalised marketing Environment.

Today’s company’s expansion diversification, and setting up policy depends upon its Far sighted Vision, decision, technical know-how of the Key Director and Key Employee and that’s required to be secured by purchasing Key-man Insurance for making funds available for promoting, recruiting in the absence of Key-man includes key-woman. This policy is specially purchased by the company (both Pvt. and Pub Ltd. Co.) for the life of its single most important Key person.

BENEFITS

SUBSTANTIAL INCOME TAX SAVINGS: The premium paid by the company for an insurance policy taken on the life of Key-man is a permissible BUSINESS EXPENDITURE U/S 37 (1) of I.T. Act,1961.( Refer CBDT letter No. 35/12/64-11 Dt.03.02.1964 addressed to L.I.C.& Finance bill 1996. Hence sizeable premium paid will be covered by significant savings in income tax and thereby reduce the Tax Liability.

INDEPENDENT SINKING FUND

The company is able to create an asset for itself in the form of premiums paid and added bonus.

PROTECTION AGAINST FINANCIAL LOSSES

The company suffers a heavy financial losses in case of premature death of its Key Man whose decision, technical knowledge, experience have significant contribution in company’s progress, profit and success. A person can not be replaced but making the provision of an independent sinking fund, the company can promote the second line managerial leadership (giving time to get trained and experienced) or purchase the services. This will Protect the interest of the other Employees, Creditors, Salesman, Financial Institutes, Shareholders, Clients etc. and keep the company’s position stabilized in the competitive market.

 

LOAN FACILITY

The company can raise loan on KMI policy from L.I.C. at 12% rate of interest p.a. with simple and quick procedure . Even though the policy is not assigned the banks do accept the documents as collateral security. In fact, some of the Banks and Financial Institutes insists for this policy. KMI policy can be accepted as security under Housing loan by L.I.C. for making provision of Housing facility by the company for its Employee/Directors.

 

CLAIM AMOUNT

Since the insurance is taken for the benefits of the business and is Allowed as business Expenses, the premium paid is not treated as perks in the hands of the K.M. (Refer CBDT letter Dt. 03.02.1964, addressed to L.I.C.) The maturity proceeds is taxable as a part of total income. So the corporate assessee can postpone tax liability for a substantial period. It works out especially well for corporate with taxable profits & expansion plans in the pipelines. If the expansion or diversification takes place in or before maturity of the policy , the additional depreciation admissible would absorb the absolute sum recd. On maturity in later years.
The death proceeds will not be taxable.

 

BENEFICIARY OF KMI

The Company is the beneficiary and the maturity amount will pass on to the Company. However, observing the procedure through assignment or agreement Surrender value of the policy can be transferred to the Key-Man only, without Tax liability to KM.

Keyman Insurance:
Given below are various requirements for Key-Man insurance proposal: