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What is Keyman Insurance Policy?

• Posted by Insurance Samadhan July 13, 2022 Filed in Business 4 views
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  In the event of an early death of the main earner, life insurance protects the family’s future income. However, in case of a firm if the continued operation of the firm depends on the contribution of this person, the same premature death could endanger it. Therefore, timely insurance of the primary person or persons can secure the future of both the family and the business. This person is known as a Key Person in businesses.

  For example, Ashok Private Limited was a software development company and they hired Manish and Ajay on very high salary and sent them to USA for a specialized training on Artificial Intelligence. Total money spent on them exceeded over Rs 5 Crore. Manish died in an road accident causing major financial loss to Ashok Pvt Ltd.

  Luckily, accountant of Ashok Pvt Ltd had opted for Key man insurance policy on life of Manish and received Rs 5 crore on death of Manish and received Rs 5 crore on death of Manish. Ashok Private Limited paid ex gratia payment of Rs 2 crore to family of Manish and kept Rs 3 Crore as reserves for loss compensation.

  It is a legal option for an employer to insure a key employee in order to safeguard the firm’s commercial interests in the event of the insured employee’s passing. The key person can be chosen based on their significance to the operation of the firm, such as having a particular expertise or position, etc.