In every Organization there are a Few Key Persons who Run the Show.They are the Pillars of the company. Any unfortunate event such as a Sudden Death of a Key Personnel may result in Temporary set back to the company.Every Organization requires Protection against Financial Loss such as liability, Recruitment Cost, Training Cost etc., if such event takes place. Key man insurance is also known as Business Continuity Plan

1. Key Person Insurance

2. Concept
• In every Organization there are a
Few Key Persons who Run the Show.
• They are the Pillars of the company.
• Any unfortunate event such as a
Sudden Death of a Key Personnel
may result in Temporary set back to
the company.
• Every Organization requires Protection
against Financial Loss such as liability,
Recruitment Cost, Training Cost etc.,
if such event takes place.
Key man insurance is also known as Business Continuity Plan

3. Who is a Key Man ?
• An Employee or a Director in a
Key Position , whose services have
significant effect on the Profitability
of the company due to his Technical
background, Experience in the field,
Industry wide Vision or Market
Image.
• Whose Permanent Absence or
(death) will Affect the smooth
running of the company.
There can be more than one Key Man within an Organization

4. Why Key Person Insurance ?
Sudden Death of a Key Person Creates a Vacuum
in an Organization as it can Affect in Many Ways :
• Business Sales
• Business Momentum
• Liability of company
• Goodwill
• Credit of company
• Cause Delay or Halt in New Project
• Added Cost & Time in grooming
new Key Person
Key Man Insurance is The Solution !

5. Face Value of Key Person
Factors which Determines The Face Value :
• Investment that the company
will require to develop a New
Key Person
• Contribution of a Key Person to
Profitability of Organization
• The Loss , the Company is
Likely to Suffer in Case of
Sudden Death of Key Person .

6. How To Determine The Face
Value ?
Method I : Three Times of Average Gross Profit of
the Company for Last 3 yrs .
Method II : Five Times of Average Net Profit of
the Company for Last 3 yrs .
Method III : Ten Times of Annual Compensation
Including Salary , Bonus & All Other Perquisites.
Least of the Amount Derived from above Methods will be
allowable Sum Assured for Key Person of The Company .
For More than One Persons , the Overall Limits Derived by Above Methods
I & II Should Not be Increased.

7. Benefits To The Organization
TAX BENEFITS
 Premium paid by the Company for
Key Person Insurance policy would be
Allowable as Deduction u/s 37( I ) of
Income Tax Act , 1961.
( Refer : CBDT Circular No 762 Dt. 18/2/98 )
 Premium paid by the Firm will not be
Treated as a “ Perquisite “ in the hands
of Key Person under Para ( V ) of the
Section 17( 2 ) of Income Tax Act , 1961,
Since the Key Person does not Derive
any Benefit from the Insurance on His
Life.

8. Advantage of Key Person
Insurance
• It May be Used as an Instrument
for Tax Planning as it gives
Substantial Income Tax Savings
To The Organization.
• No Advance Intimation Or The
Approval is Required from Tax
Authority To Claim Deduction of
Insurance Premium.
• It Keeps the Company Position
Stabilized in The Market.
• The Competition May Not Take
Advantage of the Situation
Caused by Unfortunate Death of
the Key Person .

9. Requirements
Medical Requirement
 Depends on Age & Total Face Value .
Financial Requirement
 Company would always be proposer
 Copy of Memorandum & Articles of Association
 Board Resolution
 Key Person Questionnaire Form duly signed by
Authorized signatory
 Individual Tax Returns of Key Person

10. Restrictions
• Only Term Plan Allowed in Key Man Insurance
• Riders Not Allowed
• If Proprietor/Partner Key Man Not Allowed
• Term of Cover Should Not Exceed The
Retirement or Superannuation Age .

11. Latin Manharlal Securities Pvt. Ltd.
Viraj, 6th Floor, 124, S.V. Road, Above HDFC Bank , Khar (w), Mumbai-
400 052.
www.latinmanharlal.com
Contact : 022- 40350101/ 40350187