Who is called key man ?
Business profits at all times depend upon the successful combination of physical assets and personnel. Physical assets could never be profitably employed without competent personal to organise and manage. The human factor is vitally important for success in business. Every successful business has one or two keyman who possess the managerial skill and experience to direct the efficient use of material resources of the business, whose loss would be a severe blow to the continued success of the concern.
Why keyman insurance is done ? Can it be explained briefly ?
The loss of key man for an organisation will be a severe blow for the continued success of the concern. It will take quite some time for the organisation to replace the keyman and the organisation's profit will affect adversely. Therefore, while fixing the sum assured for insurance on the life of keyman by the company, his "Contribution in business" will be taken into account. The total sum assured for company under keyman can be "5 times of the net profit of the company". Advantage for the company is that the premium paid by the company on the keyman insurance can be claimed as expense in the company's account if the company can satisfy the ITO. The claim proceeds received under the policy is exempt from income tax and he company is able to create asset for itself. The keyman has to be necessarily the employee of the company.
