Keyman Insurance
Keyman Insurance is a life insurance policy taken by a business on the life of an important employee or key person whose role is critical to the company’s success.
The business pays the premium and is also the beneficiary of the policy.
1. Who is a Keyman
A keyman can be:
- Founder or promoter
- Director or partner
- Senior employee with specialised skills
- Any person whose loss would significantly impact the business
2. Purpose of Keyman Insurance
The policy is taken to:
- Protect the business from financial loss due to death of the key person
- Compensate for loss of profits
- Cover costs of finding or training a replacement
- Maintain business stability
3. Tax Treatment
Premium Paid
- Allowed as a business expense
- Deductible under business income
Policy Proceeds
- Amount received (on maturity or claim) is taxable as business income
This is different from personal life insurance, where maturity is often tax-free.
4. Ownership Structure
- Policy is owned by the business
- Premium is paid by the business
- Claim amount is received by the business
The key person is only the life insured, not the beneficiary.
5. Assignment of Policy
- Policy can be assigned to the key person (in certain cases)
- Tax implications change after assignment
- Needs careful structuring
6. Common Mistakes
- Treating it like personal insurance for tax exemption
- Not accounting for taxability of maturity proceeds
- Improper structuring of policy ownership
- Lack of documentation
Practical Insight
Most businesses buy Keyman Insurance for tax deduction.
That’s incomplete thinking.
The real value is:
- risk protection
- continuity planning
Tax benefit is just a side effect, not the main purpose.
How N D Savla & Associates Can Help
At N D Savla & Associates, we help you:
- Structure Keyman Insurance correctly
- Ensure proper tax treatment of premiums and proceeds
- Plan assignment and exit implications
- Align insurance with business risk strategy
