LIC Branches all India - LIC policyholder services: Keyman Insurance requirements - Deciding methods

Saturday, October 10, 2020

The S.A. under key man insurance can be decided by using the following methods:-

The max .S.A. for key man insurance is restricted to :-
10 times of the key man's compensation package (total salary + annual bonuses of a regular nature and paid a fixed percentage of salary + various other perquisites such as furnished houses, utility bills, car and commission out of net profit) The notional value of perquisites is taken as 30% of the gross annual salary.
Method of gross profit:- there time of the average gross profit (profit before depreciation) of three years.
Method of net profit:- 5 times the average net profit (profit after allowing depreciation & taxation) of last 3 years. On the basis of above mentioned methods we can decide the ma. Sum assured (S.A.) for key man insurance.
Note:-no key man insurance (KMI) can be issued in case of company's profits/ turnover is declining, unless there are very special circumstance.
Max. S. A. in case of private Ltd. Companies or closely held public limited companies:
- (i) no. of shareholders/employees- 10 or more
- (ii) max .S.A - to be treated at par with public Ltd. companies
- (iii) no. of shareholders/employees - more then 5 but less then 10
- (iv) max .S.A. - 3 time the last 3 yrs average net profit(before tax)
Max .S.A. under KMI for the recently established companies in case of audited P& L accounts are present.

key man insurance to employee of partnership firms:-

Max allowable KMI cover to partnership firms
- 3 times of average gross profit of 3 year. Or
- 5 times of average net profit of 3 year, whichever is lower.
The max. amount of cover will be distributed among the key partners.
Key Man Insurance can be given on the lives of more then one partner.

Requirements to allow KMI to the employees firms/proprietary firms:-

Duly filled key man questionnaire
key man's salary proof. Copy of the employment/ individual I T R/from no.16 for last 3 years
audited account of the firms for last 3 years.
Firm's resolution to take K M I containing the name of the key-employees amount of cover. Plan & term. Authorized person on the letter head of the firms duly signed by the authorized person with stamp.
Consent for assignment/surrender max. allowed KMI will be restricted to 10 times of the salary of the financial year as shown in form no.16.
K M I is allowed only on the lives of active partners according to the following conditions:-

Average turnover for preceding 3 years should be more then 5 Crores.
Max S.A. is restricted to share capital of key man + last 3 years total net profit (Good will)

Requirements for 'Key Man Insurance':-

Proposal form no.340 signed by the authorized person of the company with the stamp of his designation below his signature.
Duly filled special questionnaire.
Certified copy of board resolution with
consent to buy key-man insurance policy.
giving authority to an individual to act for and on behalf of the company.
S.A
plan/term.
M H R in specified form by marketing manager/sales manager.
There year's copies of audited balance sheets and P&L accounts.
Necessary medical report from the medical examiner.
There year copies of I.T. returns of the company.
Form to be filled by the key man.

Income tax rules :-

In case of .S.B. is payable under the plans, will be considered as the business income of the company & will be taxable under section 28 (vi) of the income tax ACT.
Under section 31(1) of the income tax Act the premium paid under key man insurance can be claimed by corporate entities as bonafide business expenses.
If the policy has been assigned to the key man, the policy-proceeds including bonus will be taken as profit under section 17 (clause) of the income tax Act.
If the director of the company is the assignee under the key man policy, it will be taken as 'income from other sources' and will be taxable according to the section 56 (2ic) of the income tax Act.