The success of your organisation is definitely dependent on the skill-sets and contributions made by the employees. How do you protect your organisation against the untimely death of or diagnosis of critical illness in your key, resourceful person(s)? That is where the keyman (or the keywoman) insurance comes into play. In keyman insurance, the company is the proposer of the claim and will be the beneficiary in the event of the untimely death of the insured person(s). Keyman/woman may be one or more employees. A keyman should be a shareholder of less than 51% of the company shares. Also, the total number of shares held by the keyman and his/her family should be less than 70%.
Benefits of Keyman Insurance to the company:
- It protects against business risk in the event of unfortunate death of the key person.
- The premium paid will be treated as business expenses and the company would save 30% plus surcharge on every Dollar of premium paid.
- Disruption of lines of business credit due to the death of the Keyman can seriously affect the business. Here, the insurance money can help as a guarantee of loan repayment in case of death of the key person.
- The morale of the key employee is boosted. He/she feels important. The sense of belonging increases productivity and helps in retention of the key employee.
- It helps in keeping the market price of the company's shares stable in case of death of the keyman. If the keyman dies the price of the company's shares is likely to fall but if the investors know that any financial loss can be made up through the insurance proceeds, they may not start offloading the shares immediately.
- It protects the company's valuation. For example, in case of the company being put up for sale, prospective buyers are likely to put a higher value to the company if they know that it has a monetary back-up (insurance) to meet the cost of replacement of its key person.
The role of the financial advisor
What is the structure of your company? Whom to choose as a keyman? How much should you invest? What are the terms and conditions that you must decide upon before finalising the investment option? Should you factor in changes like the keyman quitting the company? What are the taxation structures like?
Addressing so many questions can be a mind-boggling task, and that is where Kapil’s experience and expertise comes to your rescue. As He knows exactly how to navigate his way through this difficult maze of questions!