(for Partnership Firms) Keyman Insurance (for Partnership Firms) 1

Who is a Keyman? A man instrumental to either gain or loss of the firm can be termed as Keyman. Exit of such a key person due to premature death would in most cases result in immediate financial loss to the firm Typical examples of Keyman MD /CEO Directors Project Managers Inventor Plans Allowed: Table 164- Anmol Jeevan, and Table 190- Amulya Jeevan-1. 2

What is Keyman insurance? Key-man insurance is the cover effected by a company to compensate the financial loss suffered following the death of a key member of the staff in an organization. What does the proceeds of Keyman insurance cover ? The loss of sales attracted by his/her ability and personality. The loss due to his/her day to day specialized skills. The cost of recruiting and training a suitable replacement. The cost of delay or cancellation of any project upon which he/she is working. The loss of opportunities for future expansion. The loss of stable management and good labor relations. 3

Eligibility for companies Open to all categories of business firms except: 1.Proprietorship firms owners. 2. Firms where shareholding of key person is over 51% and Family shareholding of Key person is over 70%.(Family will include spouse and minor children only). 3. Company not making profits for the last three consecutive years. 4. When the profit and turnover of the company are on the decline. 4

Requirements for Key man Insurance proposal (for Partnership Firm) • Proposal Form in F.No. 340 and usual medical requirements on the life of the Key – man Partner. • Copy of Deed of Partnership duly attested by the partner authorized to sign insurance proposal along with copy of supplementary Partnership Deed. • Copies of Audited Balance Sheet and Profit & Loss A/Cs for the last three years containing schedule of partner’s capital A/cs. • Copies of Income Tax Returns of the firm for preceding three years duly attested by the authorized partner. • Letter of Authority in favour of partner signing the proposal.

How is the amount of amount of Keyman insurance calculated For partners of partnership firm 1. Multiple of Keyman’s Compensation Package: Limited to 10 times of Keyman’s compensation package including perks. (The notional value of the perks can be taken as 30% of the gross annual salary). 2. Gross profit method: Limited to 2-times of average Gross profit for last 3-years (before depreciation and taxation). 3. Net profit method: Limited to 5-times of average net profit for last 3-years (after depreciation and taxation). Maximum insurance allowed restricted to least of the amounts arrived at by above 3 methods & distributed among all the key persons proposed for.

How is the amount of amount of Keyman insurance calculated Keyman Insurance to Employees of Partnership/ Proprietary firms: Restricted to 10 times the salary for the latest financial year as reflected in Form No.16. The firm should be profit making one and the profits for the last 3 years should justify the cover being allowed. ( 3 times of average gross profits or 5 times of average net profits, whichever is lower).

What if Keyman retires prematurely? On retirement/premature resignation of Keyman, the firm has following choices: a) Firm can surrender the policy. b) Firm can assign the policy to Keyman, as policy has no surrender value.

Why Keyman insurance? Protects against the financial loss in the event of Keyman’s death. The firm is able to create an asset for itself in the form of Sum assured and guaranteed/loyalty additions. Protects the interest of other employees and customers. Keeps the firm’s position stabilized in the market. 9

Why Keyman insurance? Generates confidence, sense of security and loyalty in the minds of Keyman. It can be given as security to bankers even though policy is not allowed to be assigned. It is a guarantee to the creditors. 10

11