Keyman Insurance is a life insurance policy protecting a corporation or
business from the death of a key employee, either a man or a woman.
Keyman Insurance is often required by investors in a
business where one or a small number of individual employees are key to
the success of the venture. In other words, the investors realize that
the death or disability of the key person could
effectively destroy the value of their investment. With Keyman
Insurance, if that key person dies or becomes disabled, the corporation
usually receives the proceeds as the beneficiary of the
insurance policy. The money is then available to the business attempting
to overcome the loss of the services of the key employee, or to
distribute to the investors upon the dissolution of the
corporation.
Most small businesses do not need Keyman Insurance. It is usually purchased only at the insistence of investors who fear the loss of the key manager. It is not meant to be a replacement or supplement for regular life insurance purchased by an individual for the benefit of his or her family.
If you are considering purchasing Keyman Insurance, consult an insurance advisor who is familiar with these policies. It is also important to consult your tax advisor to make sure that deductions premium payouts if any, can be maximized and that there is the minimum tax possible upon the payment of any Keyman Insurance benefits.
Buy-Sell Concept
The corporation may also want to separately consider the need to buy life
insurance for the purpose of buying back the shares of stock from the
estate of a deceased Key Executive. Implementing a
plan involving life insurance in this case usually involves completing an
agreement between certain key shareholders and the corporation. Again,
consult with a tax lawyer and insurance consultant
before proceeding with any such plan.
Example: By paying around RM1000 a month, a Company can Insure their Top Sales people Age 30 for
RM500,000.
