Posted by: Labdhi Mehta on Jun 04, 2018, 06.30 AM IST
1. This is an insurance policy where the employer is the proposer and pays the premiums. The life insured is that of the employer’s key employee and the benefit, in case of a claim, goes to the employer.
2. Th objective is to safeguard the company in case of an untimely death of the keyman with insurance proceeds received.
3. The ‘keyman’ should hold less than 51% of the company’s shares. The total number of shares of the company held by the keyman and his family should be less than 70% of the company’s shares.
4. Maximum sum assured is limited to 10 times the keyman’s compensation or 3 times the average gross profit of past 3 years or 5 times the last 3 years’ net profit.
5. The premium paid by the company buying the keyman insurance policy is treated as business expenditure and on death, the claim proceeds are taxable as business income.