With the demise of a key man in any business, investors, stake holders and the company panic due to the losses that may arise, keyman insurance can help..

The recent and shocking demise of Ved Arya Prakash of Milestone, is one of the many cases in the last few years wherein an unexpected death has led to investor panic and been a set back to the firm. While non-institutional companies like Milestone which has 1 billion dollars worth of assets under management (AUM) and has been built solely around one individual’s strengths are at far greater risk, even large institutions do tend to depend heavily on certain people. Like Steve Jobs of Apple whose recent stepping down from the mantle, caused a drop in share price.

In such cases, having a keyman insurance policy is really useful. Niraj Jain, CEO and Principal Officer, www.insurancemall.in says “Key man insurance was earlier a very integral part of most companies. Now days, it is a lot less popular. A term plan is sold as a key man policy to firms that want it.”

The reason a term policy without any maturity benefit is the only keyman insurance policy available these days is “this insurance product was abused and misused a lot by companies, who would often take these policies in March for their taxation benefits and then cancel it soon after, often within the free look period itself. Hence Insurance and Regulatory Development Authority (IRDA) came out with strict norms against this and has made it such that only a term policy with no maturity value before the death of the person can be sold as key man insurance” adds Niraj.

Keyman insurance in India is currently an employer-employee policy, where the employer is the nominee and pays the premiums and collects the amount in case of employee death. The sum assured should take care of any estimated loss. While earlier net profits were very important when buying such policies, these days an individuals salary is the key component to determining the cover.

While some agents may still try and sell a ULIP or other policies with more benefits as a keyman insurance policy, when it comes to making claims, one realises they have been duped.

Pradeep Diwan, LIC agent tells us, Private companies take keyman insurance cover more than larger organisations. There is no cover limit as such and it depends on the last three year balance sheets of the firm. The company decides based on whose sudden absence will cause losses, and they need to specify in a questionnaire as to why are they taking the cover for this person, and the importance of the person to the firm’s bottom line.”

While the strict IRDA norms may have affected the popularity of such covers, Zarsis Udhanawala, Chairman, Udhanawala Insurance and Investment Consultants says “Keyman insurance is not doing that well as normally businessmen are more bothered about themselves then the firm."

LIC, ICICI Prudential Life Insurance and SBI Life Insurance are the key players within the keyman insurance space. Niraj says “In cases like Ved Prakash Arya and Milestone, something like keyman insurance would be very useful. Fund houses and start ups need these policies a lot more than mature and well established companies.”

Most private equity firms these days have keyman clauses and insurance as often the fund manager or promoter is the most vital part of the business. Also, with a large amount of vested parties and investors involved in many company’s and fund houses, knowing the losses arising out of tragedy will be mitigated by keyman insurance, will be a load of ones mind, when dealing with the implications of an unexpected death.

To understand the nuances of different types of policies and its price, feel free to seek the help of InsuranceMall to select the right products based on your need. Or you can directly call them on +91-22-30503050

InsuranceMall is the leading and first online insurance broker in India. With the motto to make our customer delighted and proud about their decisions, we’re always there to help them with best possible policy

source: Business Standard