In many companies, a large share of revenue, relationships and know-how sits with a handful of people. If one of them were suddenly gone, the loss would show up not just in morale but on the balance sheet. Keyman insurance turns that concentrated dependence into a defined, insurer-backed sum the business can rely on.
01. What Keyman insurance is
Keyman (or "key person") insurance is a life insurance policy that a company takes out on the life of an individual whose contribution is critical to the business. The company is the proposer, pays the premium, and is the sole beneficiary. If the insured person dies (or suffers a covered disability/illness) during the policy term, the insurer pays the sum assured to the company — not to the individual's family.
The payout gives the business breathing room: time and capital to stabilise operations, reassure lenders and clients, and recruit and settle in a replacement without a liquidity crunch.
02. Who counts as a "key person"
Founders & MDs
The vision-holders and decision-makers whose departure would unsettle clients, lenders and investors.
Top revenue generators
Rainmakers and senior salespeople who personally control a significant share of the order book.
Technical & IP leads
Individuals holding critical know-how, proprietary skill or key project responsibility.
Working partners
In firms and LLPs, partners whose death would cause a real pecuniary loss to the business.
03. Why it matters
- Revenue protection — cushions the drop in income while the business regroups.
- Lender & investor confidence — many banks and investors expect key promoters to be insured.
- Cost of replacement — funds recruitment, onboarding and ramp-up time for a successor.
- Business continuity — keeps the company solvent and credible through a disruptive event.
04. How the cover is structured
Keyman cover is usually written on a term insurance basis — pure risk protection, no investment component, which keeps the premium efficient and the intent clear. The company is the proposer and premium payer, the company is the beneficiary, and the insured individual gives consent to be covered.
05. How much cover — sizing the sum assured
| Multiple of compensation | A conventional yardstick — often up to around 10× annual salary/CTC. |
| Profit contribution | A multiple of the profit or gross contribution attributable to the key person. |
| Share of turnover | A proportion of revenue directly linked to the individual's efforts. |
| Loan / liability cover | The outstanding business borrowings the person's continuity supports. |
06. Tax treatment in India
Typical Exclusions
- •Premium — deductible as a business expense under Section 37(1) where company is proposer and beneficiary.
- •Not a perquisite — premiums paid by company are ordinarily not treated as taxable perquisite for the individual.
- •Proceeds — taxable as business income under Section 28(vi) and NOT exempt under Section 10(10D).
- •If assigned to individual, proceeds are taxed in individual's hands and remain outside Section 10(10D) exemption.
07. Key considerations & exclusions
- Standard life-insurance conditions apply, including suicide clause in initial period and non-disclosure consequences.
- Cover ceases if the person leaves the organisation, unless policy is surrendered, continued or assigned.
- Riders such as critical illness or disability broaden protection with their own definitions.
- Business rationale and sum-assured justification should be documented for underwriting and tax.
08. At the time of a claim
On a claim, the company submits death certificate, policy document, claim form, and board/partnership documentation establishing the company's interest. Prompt intimation and clean documentation ensure fast settlement when funds are needed most.
09. How Aurevian helps
Keyman cover is simple in concept and easy to get wrong in execution. As your broker, Aurevian helps you identify the right individuals, size the cover defensibly, structure the proposer-beneficiary arrangement correctly, coordinate with your tax adviser, and place the risk with a suitable insurer.
“Your best people are your biggest asset — and, uninsured, your biggest single point of failure.”
