Keyman Insurance Policy1 is a type of life insurance policy for a ‘keyman’ or a valuable employee. The objective of this policy is to safeguard the company in case of untimely death of an important employee. Since employees are assets for a company, Keyman Insurance Policy helps the business recover after the loss of a valued asset. Its salient features are:
- During the lifetime of such an employee, the premium on a Keyman Insurance Policy is paid by the employer.
- In case the employee dies untimely, the employer becomes the claimant of the insurance benefits.
- To qualify as a ‘keyman’, the employee should hold less than 51% shares in the company
- The premium that the employer pays in this life insurance is treated as ‘business expenditure’ for taxation purposes; the proceeds of the policy are therefore taxable as business income.