Keyman Insurance

A key person is anyone whose skills, knowledge, leadership, or client relationships are so critical to the business that their sudden absence would cause significant financial or operational disruption — this could be a founder, CEO, top salesperson, lead developer, or any specialist whose role is difficult to replace quickly.

The business pays the premiums and is also the named beneficiary of the policy. The payout goes directly to the company, not to the key person’s family, and can be used to cover financial losses, recruit a replacement, or stabilize operations.

Coverage is typically calculated based on the key person’s contribution to revenue, the cost of recruiting and training a replacement, outstanding loans or liabilities linked to them, and the projected financial impact of their absence. A common rule of thumb is to insure for 5 to 10 times the key person’s annual salary or their contribution to annual profits.

In India, the tax treatment depends on the purpose of the policy. If the policy is taken purely as a business protection measure and the premium is treated as a business expense, it may be tax deductible. However, the payout received may then be treated as taxable income. It’s advisable to consult a tax professional for clarity.

If the key person resigns or retires, the business can choose to surrender the policy, transfer ownership to the key person as part of a severance arrangement, or replace it with a new policy on another critical employee.

Yes, keyman insurance is available at a range of premium levels depending on the coverage amount, the key person’s age and health, and the policy type. For startups and small businesses, it is often one of the most affordable and impactful risk management tools available.