Key Person (Keyman) Insurance
Protect The Business From Losing Its Key People
In many Indian companies, a founder, managing director or star salesperson carries relationships, know-how and bank guarantees that the business cannot replace overnight. Key person insurance, often called keyman insurance, is a life policy the company buys on that person, with the company as the beneficiary. If they die, the payout helps the business cover lost profit, repay loans and recruit a successor. MILES helps you size the cover, compare life insurers and structure the policy correctly.
What Keyman Insurance Does For A Business
Replaces Lost Profit
The payout offsets the fall in revenue and profit while the business adjusts to losing a critical person.
Protects Lenders And Credit
Funds can repay business loans or reassure banks where the key person has given personal guarantees.
Funds Succession
Covers the cost of recruiting, training and transitioning to a replacement leader or specialist.
Company Owns The Policy
The business proposes, pays the premium and receives the claim, with the key person's consent.
Clear Tax Treatment
Premiums and proceeds have specific treatment under income-tax law, which we flag for your tax adviser.
Independent Sizing Advice
We help you justify the sum assured with financial data, which life insurers need for underwriting.
What is keyman insurance?
Keyman insurance, or key person insurance, is a life insurance policy that a business takes out on the life of an important person, such as a founder, director or senior specialist, with the business paying the premium and receiving the payout. It compensates the company for the financial loss caused by that person's death, and in some structures for critical illness or disability.
It is a business use of life insurance, and the policy is issued by a life insurer.
Who counts as a key person
- A founder or promoter whose relationships drive most of the revenue
- A managing director or CEO leading a turnaround or expansion
- A technical expert holding critical knowledge or certifications
- A partner or director who has personally guaranteed business borrowings
- A top sales or client-relationship person responsible for a large share of income
The test is simple: if this person died tomorrow, would the business lose money that it could measure?
What it covers
Most keyman policies are term plans, which pay the sum assured on death during the term and have no maturity value. Some businesses use other plan types, and riders for critical illness or accidental disability can be added where the insurer allows. The payout goes to the company, which decides how to use it: meeting fixed costs, repaying debt, compensating for lost contracts or paying a recruitment firm.
What is not covered
- Suicide within the period set in the policy, as per standard life insurance terms
- Death arising from risks excluded in the wording or not disclosed at proposal stage
- Loss from the person simply resigning or joining a competitor; that is not an insured event
How the sum assured is decided
Life insurers need the cover to be justified by the business's financials. Common methods include:
| Method | Basis |
|---|---|
| Multiple of remuneration | A multiple of the key person's annual pay |
| Contribution to profit | Share of profit attributable to the person, over the expected recovery period |
| Loan and guarantee cover | Outstanding business borrowings linked to the person |
| Replacement cost | Cost of recruiting and training a successor, plus the disruption period |
Each insurer applies its own limits based on the company's turnover, net profit and the person's age and health. Medical examinations are usual for larger covers. The premium depends on age, health, lifestyle, sum assured and term.
Tax treatment
Under current income-tax law, a business can generally claim keyman insurance premiums as an expense, and the proceeds are taxable in the hands of the recipient. Keyman policies do not get the exemption that applies to many ordinary life policy payouts under section 10(10D). If the policy is later assigned to the key person, further rules apply. Tax benefits are subject to prevailing law, so confirm the treatment with your tax adviser.
Who needs it
Keyman cover suits owner-led SMEs, start-ups funded on a founder's reputation, professional firms dependent on a senior partner, and any company whose bank borrowings lean on one person's guarantee. It works alongside, not instead of, the key person's own term life insurance, which protects their family rather than the company.
How MILES helps
- Size the cover: we work from your financials to reach a sum assured that underwriters will accept.
- Compare life insurers: we compare keyman acceptance limits, medical requirements and premiums across life insurers.
- Structure the policy: we help with board approval, proposer and beneficiary details and any assignment plans.
- Claims support: if the worst happens, our claims team helps the company file a complete death claim.
What we need for a quote
- Key person's date of birth, role and health and lifestyle details
- Audited financial statements for the last two to three years
- Details of business loans and any personal guarantees
- The cover amount and term you are considering
If your concern is mainly debt, see loan protection insurance. You can also contact us to discuss.
Cover, exclusions and premiums depend on the insurer’s policy wording and underwriting. MILES Insurance Brokers Pvt. Ltd. is an IRDAI-licensed direct broker (Life & General, Reg. No. 954); the insurance is issued by the life insurer. Tax benefits are subject to prevailing law. Insurance is the subject matter of solicitation.