Key man & Partnership Insurance
What is Key Man Insurance?
As a company, we put a lot of our time and effort in not only growing talent but also making a substantial investment in each of our employees. In such a scenario, it is only good sense to insure the position of an employee that is invaluable to the unhindered running of the company.
And this is where key man insurance comes into play. 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. The `key man’ or ‘key person’ would be any person employed by a company having a special skill set or substantial responsibilities and who contributes significantly to the profits of that organization.
Key man insurance is important, particularly for family businesses that are highly dependent upon a few individuals. It helps ensure that the business can absorb the financial strain of an early death and continue sustainably. The low cost and ease of securing a key man insurance policy makes this very important business decision a simple one.
How can Key man Insurance be used?
Basically, it is a pure term plan that can be bought by a company to cover the life of an important employee. But, the policy has many uses. The amount that can be claimed with such a policy allows you to not only recruit and train key personnel, but also secure and settle loans, offer salary continuation arrangements to the spouse of the deceased and fund executive compensation plans.
What are the advantages of Key man Insurance?
Be it a small business or a large company, key man insurance provides quite a few advantages:
- In case of death of the employee, the company receives the sum assured to cope with the loss and also ensures business continuity without any hiccups.
- The policy contributes to the company’s tax planning - Premium allowed as business expense under section 37(1) of Income Tax Act, 1961, subject to satisfaction of the assessing officer.
- 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 key man insurance.
What is Partnership Insurance?
Partnership insurance is a type of insurance that is commonly purchased by partners in a business. It generally involves partners purchasing life insurance policies on each other and naming themselves as the beneficiary. This way, if one of the partners dies, the other can use the life insurance payout to purchase the deceased partner's share of the business.
Partnership insurance protects businesses by helping to prevent a third partner from coming in and purchasing a partner's share when they die. With partnership insurance, the control of the business is generally consolidated into the surviving partner's hands.