This can also be referred to as Key Person Insurance of Keyman Insurance. It a form of business insurance that can be seen as an insurance policy that is entered into by a business to compensate the business in terms of Losses arising as a result of death or the incapacity of a prominent member of that Business. To be succinctly out, it can be said that the Key man life insurance is one that is bargained for business succession as well as protection. It is worthy to note that the sole aim of the businesses in keyman life insurance if for the smooth running as well as the success of the Business. Keyman does not pay for the losses, but they compensate for the losses with a particular monetary value depending on how the situation may be.
The term keyman has to do with the main holders of a particular company that supports a company in terms of finances and other services that ensure the smooth running of that particular company. In most company or organization for instance, there are some persons who contributes tremendously to the success of the company, these contributions may be financially, mentally, manpower or in terms of Punctuality; it is left for the employer to ensure he or she insured that particular person to enable the strong health of such organization. Thus; the Keyman that is said here, does not necessarily mean the employer, it can also be said to be the employee as long as he plays a major function in the organization and Company.
In terms of the decision on the amount of money to be issued to this person, it is dependent on the agreement of the company and the exact reason by which the insurance was made because like it was stated earlier on, there are different reasons in which one could be referred to as a key person. Research has shown that in some companies, when the Key person is dead or been fired and the management of such an organization does not have a good relationship with his or her workers (employees), there is a very high tendency of such a person to leave. So, this is the reason by which most businesses, organizations as well as firm are always advised to insure their key Man.
Merits of Key Man Life Insurance
- In the case of the death of the Key Man, the company is paid to enable the smooth running of the firm or organization and to ensure that they cope with the loss.
- Research has shown that in the United State of America, any firm or organization that insurances a key man can demand or get a claim for the deduction for the premium paid for the policy as a business expense. Though in some countries, tax deduction also applies.
- The policy can be used to pay more money during the service period to the key man being insured.
- No need for paying advanced intimation for tax.
- This policy helps to ensure the retention of the key men in an organization or firm.
It is worthy to note that in the Key Man insurance policy, the policy is surrendered then the amount endorsed is taxable in the hands of Key Man as profit or lieu for salary or income.
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