by lakemen » Mon Apr 24, 2006 11:12 am
Who do you think in your organization is that kind of an employee whose knowledge, work and overall contribution to your organization you consider to be outstandingly valuable? If you have 1 or a few names already, then these are your key men. What if your business is to suffer a financial loss due to the death or the inability of the key man t work for an extended period? Key man insurance helps compensate for such a loss.
Who can you consider as key man?
Key people in an organization can be those who:
- Help drive your business and give it a direction
- With their efforts help give your organization the ideal sales figures and the profits that you may otherwise have lost.
- Are at levels like directors, owners, partners, senior managers, managers in technical development, operations managers and similar such individuals.
What are the insurance losses that may occur?
The losses that are predicted in key man insurance may be put into 4 distinct categories:
- A loss that may occur due to the inability of a key man to work for an extended period. This will provide temporary personnel to replace the keyman and also maybe finance recruitment as well as training of the replacement.
- Loss of profits that would otherwise have come from sales. Losses that would incur from delay or cancellation of any project involving the key man. Loss also means loss of specialized skills.
- Loss of partnership interest or shareholders interest. Protection of this loss ensures that existing shareholders or partners should purchase the shareholding or partnership interest.
- Loss arising from any fault by anyone involved in guaranteeing loans for business or banking facilities.
How much will key man insurance cost you?
When you are insuring your key man you should consider:
- What effect the loss of the key man would have in the profit figures of your organization?
- What would be the cost of recruiting as well as training a replacement of the key man?
- What are the loans that could be recalled on the key man’s death or disability?
What are the key man insurance premiums based on?
When the insurance companies take to insure the key man in your organization, there are few factors that determine the premiums that they charge. The premiums are based on:
- Salary: Multiples of the key person's salary (usually between 5 and 10 times) is taken into account. Although this gives a straightforward means to work out the premium, it may not reflect the true value of the individual to your business.
- Profits: The proportion of profits i.e. the annual profits, the key person's salary and the time it would take to replace these are taken into account here.
- Term: The time for which the key man insurance is to be taken.
- Tax Position: There is no legislation regarding taxation of key man insurance. However, what is considered is that whether the premiums will qualify for tax relief. If there may be some amount of shareholding by the key person, then tax relief on the premium may be unlikely.
Why should you purchase key man insurance?
Here are 5 reasons why you should purchase key man insurance.
Running an organization successfully requires the cumulative effort of the employees and there are some employees who become indispensable. These key men of the organization need to be insured as they are the ones who help take your organization to a direction. Key man insurance is an important aspect when you want to insure your business to run in an organized manner.
- The business that you run is a professional one and the key employees are such that they cannot be replaced easily due to legal or ethical limits.
- Your business would not be able to continue for long without that particular individual you have lost.
- Continuity in business is important. If you have partners, see how much they understand your business. Take care to find out how your family understands your business. Someone may inherit your partner's share of the business and not know much about it. Food for thought.
- Scope for suture growth and financing will be considered by insurers as an important factor. If there is scope for growth in the future, key man insurance may be purchased.
- The age of the key persons is between 30 and 55 years. Disability may be more probable than death, hence key man insurance may be considered to keep a check on the losses that may occur because of the inability to work of that particular individual that might incur losses.
Running an organization successfully requires the cumulative effort of the employees and there are some employees who become indispensable. These key men of the organization need to be insured as they are the ones who help take your organization to a direction. Key man insurance is an important aspect when you want to insure your business to run in an organized manner.
Posted: Fri Dec 14, 2007 08:06 am Post Subject:
Hi gaptrades, welcome to the forums. Your post on Keyman Insurance has been shifted to a new thread.
You can find it here >> http://www.ampminsure.org/feedback/about3591.html
Thanks,
Lakemen
Posted: Wed May 20, 2009 03:39 pm Post Subject: Thanks to all who posted
So if I understand this correctly, Key person life insurance premiums for any business structure are not deductible and the proceeds (upon death of this key person) are not taxable. Thanks again to all.
Posted: Sun Oct 11, 2009 12:35 pm Post Subject: sir
sir,
i have a couple of questions i hope u can answer me.
1. Imagine that you owned a successful “one man business” explain why you might like that business to become limited company.
2. Before you enter college and before you study Land Reform, did you know its contents? If yes, can you tell names and cases of specific people you know who have successfully availed of this program? If no, what do you think you can do for a national program like this?
3. What do you think the reason/s why the law-making body decided to give higher rate than those employee/ worker who work at night than those who work at day time?
• Do minister/clergy (priest, imams et al) file income tax returns in the Philippines?
4. Does the fact that a firm is a monopolist, and therefore a price searcher, ensure that it will be able to earn positive economic profits? Why or why not?
hope u can help me answer my assignment. thank you!
Posted: Sat Jan 23, 2010 01:18 pm Post Subject: Keyman insurance
Suggest some keyman insurance policy
whether the employer can claim the benefits ? or the claims will be on individual account?
Posted: Thu Feb 04, 2010 05:58 pm Post Subject:
Keyperson coverage is an individual policy on the life of a key employee. The beneficiary is the employer.
InsTeacher 8)
Posted: Thu Mar 11, 2010 06:57 am Post Subject: Taxation on Partnership Keyman Insurance
Please clarify how to caluclate the tax on assigning the Partnership keyman insurance to one of the partner during the policy tenure
Posted: Fri Mar 12, 2010 12:01 am Post Subject:
Please clarify how to caluclate the tax on assigning the Partnership keyman insurance to one of the partner during the policy tenure
Are you talking about assigning ownership of the policy to the employee prior to the employee leaving the company? What kind of tax information are you looking for? If you could be a bit more specific, we can help!
InsTeacher 8)
Posted: Mon Mar 15, 2010 04:30 pm Post Subject:
if key man insurance if put on all owner's of a corporation and 1 or more pass away, does the insurance payment represent a taxable benefit to the corportation?
Posted: Wed Mar 17, 2010 02:51 am Post Subject:
No, that's why they can't deduct the premiums paid from their income.
Posted: Sun Apr 25, 2010 05:41 am Post Subject:
why is key mans life insurance with the corporation names as beneficiary premiums nondeductible and keymans life insuance with the spouse and children as beneficiaties premiums deductible?
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