A company invests a lot of time and effort in finding the right skill person; hence it will be advantageous for the organization to ensure that person’s position. Key man insurance is a kind of life insurance policy that an organization purchases on the life of a top executive, an owner, or any other individual who is considered an asset to the company. Under key man insurance, the company pays the premium, and it is also the beneficiary of the insurance policy.
Understanding key person insurance
Under critical person Insurance, a financial cushion is provided under the policy. If any sudden loss of the key man happened, then this insurance helps in safeguarding the adverse effect to the company’s operation. Under this policy, a death benefit will be provided to the company, allowing the organization to find a new person to fill that position or implement a different strategy to shut down the business.
What are the benefits of keyman insurance?
For a large company or small business, keyman insurance provides a lot of advantages which includes the following:
- In case of the sudden death of an employee, this insurance helps the company receive the sum insured that further supports the business to continue its operation without any worry as it contributes a lot to cope with the loss.
- The policy also helps a lot for the company’s tax planning as the premium paid by the business organization under section 37 (1) of the Income Tax Act helps for the satisfaction of the assessing officer.
- With the help of the sum received by the insurance company, the organization will be able to handle various operations, including the recruitment and training of capable employee replacement. It also helps in running with the liquidation of the company and managing the debt.
How to use a keyman insurance policy?
Key man insurance policy is insurance purchased by the organization to cover the life of the critical person. This insurance policy has various uses. The sum provided by the insurance policy helps the organization train and recruit the essential person in the organization and helps in the settlement of loans or offer the same salary to the deceased person’s family. Further, it also provides tax benefits up to the premium paid for the insurance that helps in planning an organization’s financial portfolio.
Conclusion
Key man insurance policy plays a vital role, especially for the family businesses, as it has been operated or controlled by a few individuals only. This insurance policy helps the organization to cope with any financial strain faced by it after the sudden death. The cost of insuring a key person of an organization is not much. It provides more benefits and helps in taking the critical decision of the organization.