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Intention and Benefits of Key man Cover (Insurance ) Research Team | Posted On Saturday, April 04,2009, 05:55 PM

Intention and Benefits of Key man Cover (Insurance )



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.


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