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Key Man or Key Person Insurance

What is  Key man or Key Person Insurance?

Key man or Key Person Insurance is an Insurance taken for a employee with specialized skills or holding a key position, whose loss can cause a financial strain to the company. For example, he/they could be: Directors of a Company/business, key sales people, key project managers, people with specific skills etc.

Key man insurance is 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 a claim, goes to the employer.

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Why do a business need Keyman/Keyperson Insurance?

As a company, we put a lot of our investment, time and efforts to grow talent, so theses employees may become most valuable asset for the growth of our company. Because they are most valuable for the company, In such a scenario, one must insure the position of an employee that is invaluable to the unhindered running of the company.

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The death of the employee can following type of losses to the company:

(a) Loss arising from profit reduction for the company.

(b)Costs for the company in replacing the Keyman.

(c) Cost of Adjustment time.

(d) To hire a man of  same caliber may need "more money/attractive Offer" which costs to company.

(e) Losing Client's confidence in company.

(f)  Losing Investor's confidence.

(g) Creditor's Pressure.

(h) Negative Effect on employee's moral.

(J) Effects on market sentiments.

(k) effect on Brand Image.

(l) Competitors starts attacking strategy to gain more market share.

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How Keyman/Keyperson Insurance helps to overcome all these losses?

(a) Keyman Insurance cover is a pure Term/Risk product, which is decided/procured depending on the capabilities of said Keyman. In case the Keyman is no more, company gets a claim amount, which is good enough to compensate all losses listed above, as well as to bring company in a cash rich state.

(b) The Premium paid is allowed as business expense under section 37(1) of Income Tax Act, 1961, so it helps to lower taxes of company too.

(c) Options such as recruiting and training capable employee replacements, handling debt and liquidation of the company, or even successfully selling the company are all within reach when a business is covered by Keyman insurance.

 

Keyman insurance is very very important, particularly for family businesses or family owned private limited companies that are highly dependent upon a few individuals. It helps to ensure that the business can absorb the financial strain of an early death and continue sustainably. The low cost and ease of securing a Keyman insurance policy makes this very important business decision a simple one.

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As Gagan Singh Lakhanatia is a certified Business Risk Manger, he is specialized for Protecting Business Owners for these kind of risks. if you want to know how you can get Keyman Insurance for your key persons, please contact us.

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