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 expertised 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
SUBSTENTIAL
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.
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.
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 death proceeds
will not be taxable.
