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Insurance for Key Personnel Protecting Your Business from the Unexpected

Key Person Insurance is a business protection policy designed to safeguard companies against financial losses arising from the sudden loss of a critical employee, owner, or partner. It ensures business continuity by covering risks tied to the absence of individuals whose skills, expertise, or leadership are vital to the organizationu2019s success.

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Insurance for Key Personnel Protecting Your Business from the Unexpected

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  1. Insurance for Key Personnel Protecting Your Business from the Unexpected

  2. Defining the Key Person WhoisaKeyPerson? Objective Key Executive Key Toindemnifythebusinessfromthedeathofa Key Person. Employee Whole Business Concern Includes: Time Director Company: Insures KeyEmployees/Directors Working Partner Partnership Firm: Insures Working Partners/Employees Their talent and experience are crucial to business success and they cannot be easily replaced. Sole Proprietor Concern: Insures Key employees (not the Sole Proprietor)

  3. Risks of Losing a Key Person Financial Impact Confidence Erosion Reduced profits,sales, and production; decreased business value. Impairedcustomer,supplier, and creditor confidence. Operational Disruption Strategic Vulnerability Delayedorterminatedprojects; risk of forced liquidation. Reducedbrandvalue;increased risk of hostile takeovers.

  4. Benefits of Key Person Insurance KeyBenefits AdditionalAdvantages Replaces lostprofits. Creates policy cashvaluesforemergencies or opportunities. Funds recruitment and training of replacements. Supports key employee retirement/disability income. Death benefit paid to the business concern. Assures continuity to customers, creditors, and employees. Provides liquidity for the business. Key person insurance is taken by a business concern for its own benefit, not for the individual. The business pays the premium, retains policy rights, and receives benefits.

  5. Eligibility Criteria: Holdings Holdings in an Entity Foranentity, thekeypersonshould not hold: More than 50% individually. More than 75% jointly with their family (spouse and minor children). These are conventions, not strict rules or laws.

  6. Eligibility Criteria: Contribution & Documentation ContributiontoProfits&Profile Documents-Profits&Compensation Quantumof insurancedependsonthekeyperson's contribution, considering: Cover forallkeypersons is limitedtotheleastof: 3x Average PBDT (last 3 years) Qualifications 5x Average PBT (last 3 years) Experience Individual key person's cover limit: Up to 8x annual compensation. Number of key persons in the concern Information on PBT & PBDT is found in the Balance Sheet and P&L Statement of the Company's Annual Report.

  7. Financial Statements Overview BalanceSheet ProfitandLoss Statement Snapshot of financialposition, reflecting sources and application of funds. Details operations, income, expenses,and profits generated during the financial year. Sources: Shareholder funds, loan funds, current liabilities. Applications: Fixed assets, investments, current assets. Expenses: Raw material, power, operating expenses, interest, depreciation. Income: Sales, other income, interest, dividends, rent. For Key Person Insurance, we focus on Profit Before Tax (PBT) and Profit Before Depreciation & Tax (PBDT).

  8. Documentation & Policy Procedures DocumentsRequired Plans&Policy Procedures Copy of Memorandumand OnlyTerm Plansare offered. Articles of Association. Maturity coincides with key person's retirement age. Board Resolution authorizing insurance. Audited accounts for the last 3 years. Key Person Questionnaire. Business owns policy, so no nomination. Assignment possible to key person or new employer. Key person's I.T. returns for the last 3 years.

  9. Tax Treatment 2 1 Premium as Business Expenditure Not a Perquisite Claimable underSec37 oftheI.T.Act(Circular No 762, 1998), with commercial justification. Premiumpaidbyconcern is not a perquisite for the key person. 3 4 Policy Proceeds Taxable Assignment Implications Proceedsreceived by concernare treated as business income under Sec. 28 of I.T. Act (currently not applicable). If assigned, surrendervalueis aperquisite. If key person pays for SV, no immediate tax liability, but purchase price is taxed as business revenue.

  10. Key Benefits of Key Person Policy BusinessIndemnification Corporate Tax Saving Retention Tool Protects theconcern in caseof sudden death of the Key Person. Premium canbeclaimedasa business expenditure. Avaluabletoolforretaining key personnel. Recognition & Collateral Emergency Withdrawals Policycanbegiftedasrecognition or used as collateral secur it y. Withdrawalspossiblefromthepolicy for emergencies.

  11. + (91) 93979 - 98765 www.wealthmunshi.com contact@wealthmunshi.com

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