Keyman Life Insurance

What is Keyman Life Insurance?

A Keyman is an essential employee in an organization, partnership firm, or proprietorship company whose absence would significantly impact business operations. There can be multiple key persons in an organization, and their sudden demise could lead to direct and indirect financial losses, including revenue decline, operational disruptions, and business instability.

To mitigate this risk, businesses can opt for a Keyman Insurance Policy, a form of term life insurance that provides financial security in case of the key personnel’s unexpected demise. This policy ensures that the organization receives a sum assured (claim payout) to sustain business operations until a suitable replacement is found.

Eligibility Criteria for Keyman Life Insurance

• The insured must be an on-roll or contract employee of the organization
• Both men and women employees holding key roles are eligible
• The employee should have specialized skills or hold a crucial position in the company
• Coverage is valid only until the retirement age (for on-roll employees) or contract period (for contract employees)
• Sole proprietors and partners are not eligible, as they are not considered employees
• Only term life insurance qualifies as a Keyman Insurance Policy
• The Keyman must hold less than 51% shares in the company
• The total shares held by the Keyman and their family should not exceed 70% of the company’s total shares
• The company must submit relevant proof to the insurer justifying the Keyman’s critical role in the business
• Loss-making organizations cannot purchase a Keyman Insurance Policy
• Companies with declining profits or turnover in the past three years may not be eligible for Keyman Insurance