I joined our family business soon after college but I intend to go for higher studies. Though my father has a term insurance, I have heard about keyman insurance policy. What benefits does this policy offer?
Keyman insurance is a pure term insurance plan taken by a company for its key employees whose premature death would cause a financial loss to the organization. The premium on such policies has to be paid by the company. The premiums paid for this policy are considered as business expenses and the proceeds of death claim too are paid to the company. There are certain conditions which are enforced by insurance companies while accepting keyman insurance proposals. These conditions are:
•Keyman insurance cannot be granted to the proprietor or the major shareholder in the company proposing the keyman insurance.
•Normally keyman insurance will not be allowed in case the key man holds more than 25% of the share capital of the company. Similarly keyman insurance cannot be granted in case the key man together with family members holds more than 50% of the shares of the company. The family members for this purpose are defined as spouse and children only. The underwriters may consider the case even when the family share-holding exceeds 50% provided, the number of shareholders are more than 100 and the number of employees are also more than 100.
• Normally keyman insurance will not be granted to the partnership firm on the life of a partner, unless it is established that the partner is active in the business of the firm and in case of death or illness of the partner the other partners may not be able to continue the business of the firm. Please note that the keyman insurance is not offered to replace the partnership capital of the firm, but to protect the firm against business losses due to the death or illness of the key man.
•Keyman insurance cannot be granted to loss making companies/firms.
What happens if a person who has a life cover and the nominee of the insurance die at the same time?
In an unfortunate event of simultaneous death of both the policyholder and the nominee, the claim amount is paid to the legal heir of the policyholder.
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