Definition
Keyman Insurance
Keyman insurance is a life policy a company buys on the life of a key employee or founder to protect against financial loss from that person's death.
Indian companies use keyman (or 'employer-employee') insurance to cover the revenue and continuity risk tied to a critical individual, such as a star salesperson, technical expert or promoter. The company is the proposer, premium payer and beneficiary, and the death benefit cushions the business while it adjusts.
Premiums are generally allowable as a business expense, but the tax treatment of proceeds and of any later assignment of the policy to the individual has specific rules under the Income-tax Act. Keyman policies are typically pure-term to maximise cover per rupee of premium.
Related terms
- Assignment of PolicyAssignment is the legal transfer of the rights, title and interest in a life insurance policy from the policyholder to another person or entity.
- Insurable InterestInsurable interest is the legal requirement that the policyholder stands to suffer a genuine financial loss from the insured event, making the contract valid.
- Term InsuranceTerm insurance is pure life cover that pays your family a large sum if you die during the policy term, in exchange for a low premium.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.