Key man insurance policy

Its an insurance policy where the proposer as well as the premium payer is the employer, the life to be insured is that of the employee and the benefit, in case of a claim, goes to the employer.

Anybody with specialized skills, whose loss can cause a financial strain to the company are eligible for Keyman Insurance. For example, they could be:

1.Directors of a Company

2.Key Sales People

3.Key Project Managers

4.People with Specific Skills.

any company buying keyman insurance for its employee can claim a deduction for the premium paid for the policy as a business expense under Section 37(1) of the Income Tax Act.

No advance intimation/approval is necessary from the Income Tax authorities to claim deduction of insurance premium payment.

If the company receives the proceeds on maturity, then they are taxable/All claims – maturity, surrender or death benefit received by the company are taxable.

Nicely explained by Santosh Sir....To add

As per Amendment by Finance Act,2013-the sum received by an employee on assignment of keyman insurance pollicy to him will be taxable in the hands of the company.

Thank you santhosh sir and saurabh sir...

@ Saurabh: On assignment, tax to be borne by company or employee?

Hi All,

Still my doubt is whether Key Man Insurance premium can be claimed as expenditure U/s. 37 (1) OR any clarification from the Tax Authorities in this regard.