Intention of Key man Cover
It provides a financial cushion to the company for:
- The failure of customers or sales affected by the key man’s ability and personality.
- The failure of day-to-day specialized skills.
- The expenditure of recruiting and training a appropriate replacement.
- Delay or cancellation of any business project that the key man is working in.
- The failure of opportunity to expand in the future.
- The failure of stable management and good labor relations.
- Decrease of credit worthiness - recall of loans guaranteed by the key man.
Following are the Benefits to the Company:
- Insulate the risk of financial failure against failure of a Key man.
- Premiums paid under key man insurance may be fully permissible as Business Expenses under Section 37(1) of the Income Tax Act, 1961, subject to fulfillment of the assessing authority.
- Interest on loans taken against a key man insurance policy may also be permissible as business expenses.
- Premiums paid by the company on the life of a key man would not be treated as perquisites in the hands of such a key man when the company’s request is accepted by the assessing authority.
- Key man Insurance policy is a positive measure to develop the retention of the key man in the company.