Life Insurance · advanced
Key Man Insurance
Key man insurance explained — what it is, who counts as a key person, how the business's loss is estimated, how the policy is owned and assigned, what follows when a partner or director dies, how premium and proceeds are taxed, and worked claim scenarios.
- 01What is Key Man Insurance — Definition, Purpose & Legal FrameworkKey man insurance is term life cover that a business takes on the life of a person whose death would cause it financial loss. This lesson explains who the parties are, why insurable interest matters and when it is tested, and which laws apply.
- 02Identifying Key Personnel — Who Qualifies as a Key PersonWho counts as a key person for keyman insurance. The test is the financial loss the business would suffer on the person's death, not title or seniority, and insurers ask the business to show its authority and insurable interest.
- 03Valuation Methods — Income Multiplier, Replacement Cost, Contribution to ProfitsThree commonly described ways of estimating how much keyman cover a business's loss would justify: a multiple of compensation, replacement cost and contribution to profits. All are underwriting conventions, not rules, and every figure here is an assumption.
- 04Policy Structure — Ownership, Premium Payment & Benefit AssignmentHow a keyman policy is put together: the business owns it, pays for it and receives any claim; the key person is the life assured; the cover is term insurance; and the policy can be assigned under section 38 of the Insurance Act, 1938.
- 05Tax Treatment — Premium as Business Expenditure, Proceeds as Business IncomeTwo separate tax rules apply to keyman insurance: the premium is generally allowable as business expenditure, and the proceeds are taxable as business income of the employer. This lesson explains each and shows the arithmetic.
- 06Claim Scenarios — Death Claims, Timelines & Tax on ProceedsHow a keyman death claim works: who claims, the settlement timelines under IRDAI's 2024 framework, when an insurer can question a policy under section 45 of the Insurance Act, 1938, and the tax on the proceeds.
- 07Key Man Insurance for Partners & DirectorsPartners and directors are often key persons. This lesson covers what the law says happens to a firm or a board when one of them dies, what keyman cover on such a person does, what it does not do, and how tax affects the amount the business keeps.
- 08Illustrative Scenarios — Applying Key Man Insurance RulesPractice in applying the keyman rules to short invented scenarios: whose insurable interest supports the policy, what section 45 allows an insurer to question and when, and how to do the simple calculations that come up.