Keyman Insurance: The Safety Net Your Business Can’t Afford to Skip

Picture this: It’s Monday morning. Your star salesperson who brings in 40% of your revenue doesn’t show up. Later that day, you get the devastating news, sudden heart attack, didn’t survive.

Within a week, three of your biggest clients start looking elsewhere. Your investors are nervous. Your bank wants reassurance about that ₹50 lakh loan he personally guaranteed. Your team is shaken. And you’re scrambling to figure out how the business will survive the next six months.

This nightmare scenario is why Keyman Insurance exists.

For startups, SMEs, and mid-sized businesses in India, losing a key person isn’t just sad, it’s potentially catastrophic. One person’s absence can trigger a domino effect: lost revenue, spooked investors, operational chaos, and sometimes, business closure.

Let me show you exactly how Keyman Insurance works, who needs it, how much it costs, and, most importantly, how it can save your business when disaster strikes.

What Exactly Is Keyman Insurance? (The Simple Explanation)

Keyman Insurance (also called Key Person Insurance or Key Man Insurance) is a pure term life insurance policy that your company buys on the life of a critical employee or director.

Here’s how it’s different from regular life insurance:

Regular Life Insurance:

• Individual buys it for themselves
• Family is the beneficiary
• Premiums paid by individual
• Family gets payout on death

Keyman Insurance:

• Company buys it for a key employee
• Company is the beneficiary
• Company pays premiums
• Company gets payout on death

Think of it as business interruption insurance for human capital. Just like you insure your factory against fire, you’re insuring your business against losing the person who makes that factory run.

The IRDAI Rules You MUST Know (2026 Compliance)

The Insurance Regulatory and Development Authority of India (IRDAI) has specific regulations for Keyman Insurance. Get these wrong and your policy might not be valid or the payout could face issues.

Rule 1: Only Pure Term Insurance Allowed

What’s allowed:
✓ Pure term life insurance (death benefit only)
✓ Fixed term duration (10-30 years typically)
✓ Add-on riders for critical illness or disability (some insurers offer this)

What’s NOT allowed:
✗ Endowment plans (savings + insurance)
✗ Whole life insurance
✗ Money-back policies
✗ ULIPs (Unit Linked Insurance Plans)
✗ Policies with maturity benefits
✗ Return of premium plans

Why this rule? IRDAI wants clear separation between business protection (term insurance) and investment products. Keyman policies are pure risk mitigation tools.

Rule 2: Loans Against Policy (Generally Not Available)

Loan facilities against Keyman Insurance policies are generally not offered by insurers, though this is based on common industry practice rather than an explicit IRDAI prohibition. Unlike some regular term insurance variants, Keyman policies typically do not include loan provisions.

Always confirm: Loan availability (or lack thereof) with your specific insurer before purchasing.

Rule 2A: Critical Illness and Disability Riders (Permitted)

While the base Keyman policy must be pure term insurance, IRDAI does permit certain riders to be added:

Allowed riders:
✓ Critical Illness Rider (lump sum on diagnosis of specified illnesses)
✓ Disability Rider (monthly income or lump sum on permanent disability)
✓ Accidental Death Benefit Rider (additional payout if death is accidental)

Critical condition: Riders must not convert the policy into a savings or investment product. They must remain purely risk protection add-ons.

Confirm with insurer: Not all insurers offer all riders for Keyman policies. Availability varies by company and product design.

Regulatory basis: As per IRDAI Master Circulars and guidelines on term insurance products, Keyman Insurance must be structured strictly for risk coverage purposes only, with pure term insurance as the foundation.

Rule 3: Shareholding Restrictions (Insurer-Specific)

Important clarification: There is no universal IRDAI-mandated shareholding cap for Keyman Insurance. However, many insurers apply their own restrictions to prevent misuse.

Common insurer practices:

• Many insurers restrict or scrutinize cases where the key person owns more than 51% shares
• Some insurers look at combined family shareholding (e.g., >70% may face questions)
• These limits vary significantly by insurer and specific circumstances

Why insurers do this: To ensure it’s a genuine business protection need, not primarily a tax planning arrangement for promoter families.

Action required: Always verify specific shareholding eligibility criteria with your chosen insurer before applying. What one insurer accepts, another may decline.

Rule 4: Key Person’s Consent and Underwriting Requirements

IRDAI mandates strict consent and documentation requirements:

Key person must:

• Be informed about the policy’s existence and purpose
• Provide written consent for the company to insure their life
• Undergo medical examination if required (typically for sum assured above ₹50 lakhs to ₹1 crore, varies by insurer)
• Disclose accurate health information during underwriting

Company must provide:

• Board resolution or partnership deed resolution authorizing the policy purchase
• Company financial statements demonstrating ability to pay premiums
• Documentation establishing the key person’s critical importance to business operations
• Proof of insurable interest (how the company would suffer financial loss from key person’s death)

Underwriting requirements: For higher sum assured amounts (typically ₹50 lakhs to ₹1 crore and above, varies by insurer), expect:

• Comprehensive medical examination
• Blood and urine tests
• ECG (Electrocardiogram)
• For very high coverage (₹5 crores+): Stress test, ultrasound, detailed medical history review

The absence of proper consent or fraudulent non-disclosure can result in claim rejection.

Who Qualifies as a “Key Person”? (With Real Examples)

A key person is someone whose sudden absence would cause significant financial loss or operational disruption to your business.

Startup Scenarios:

These are hypothetical, illustrative examples. Actual financial impacts will vary significantly based on your specific business, industry, revenue model, and circumstances. Tailor calculations to your actual situation.

Tech Startup (Hypothetical Example):

• Key Person: Founding CTO who built the entire product
• Risk: No one else understands the codebase; product development stops
• Hypothetical Financial Impact: Approximately ₹50 lakhs in hiring costs + 6-12 months rebuilding time = estimated ₹1-2 crore potential loss

E-commerce Company (Hypothetical Example):

• Key Person: Marketing Head driving 70% of customer acquisition
• Risk: CAC (Customer Acquisition Cost) spikes, revenue drops
• Hypothetical Financial Impact: Potential 40% revenue drop for 6 months = approximately ₹75 lakhs estimated loss

SME Scenarios:

Manufacturing Unit:

• Key Person: Production Manager who handles all quality control and supplier relationships
• Risk: Quality issues, production delays, supplier payment disputes
• Financial Impact: Contract penalties + lost orders = ₹30-50 lakhs

Consulting Firm:

• Key Person: Partner bringing in 60% of annual billings
• Risk: Clients leave for competitors, revenue collapses
• Financial Impact: ₹80 lakhs annual revenue loss

Professional Firms:

CA Firm:

• Key Person: Senior Partner with all major client relationships
• Risk: Clients switch to other firms
• Financial Impact: 50% client loss = ₹40 lakhs annually

Law Firm:

• Key Person: Founding Partner known for winning cases
• Risk: Reputation takes hit, new client acquisition stops
• Financial Impact: ₹1 crore over 2-3 years

Common Key Persons:

✓ Founders and Co-founders (especially in single-founder startups)
✓ CEOs and MDs (particularly those who are the public face)
✓ Top Salespeople (generating 30%+ of revenue)
✓ Lead Developers (with critical technical knowledge)
✓ Head of Operations (managing day-to-day execution)
✓ CFO (handling all financial relationships with banks/investors)
✓ Chief Scientists (in R&D-heavy businesses)

How Keyman Insurance Actually Protects Your Business

When the key person dies (or becomes critically ill/disabled if you have those riders), the insurance company pays the sum assured directly to your company. Here’s how that money saves your business:

Immediate Use 1: Cover Lost Revenue

Scenario: Your VP Sales generating ₹3 crores annually dies suddenly.

Reality: It takes 6-9 months to find, hire, and train a replacement. Even then, they won’t match the original person’s network and relationships for another year.

Financial Impact: Conservatively, you lose ₹1-1.5 crores in revenue.

How Insurance Helps: ₹1.5 crore payout covers the revenue gap, keeping business afloat during transition.

Immediate Use 2: Fund Replacement Costs

Recruitment costs: ₹5-8 lakhs (executive search firm + advertising)
Signing bonus for senior hire: ₹10-20 lakhs
Training and onboarding: ₹3-5 lakhs
Productivity ramp-up buffer: ₹10 lakhs

Total: ₹30-45 lakhs just to get someone operational

How Insurance Helps: Payout provides this cash without affecting working capital.

Immediate Use 3: Reassure Stakeholders

The Day After:

• Your biggest client calls: “Who’s handling our account now?”
• Your bank calls: “That loan you took was based on Mr. Shah’s guarantee…”
• Your investor calls: “What’s the succession plan?”
• Your employees whisper: “Is the company going to survive this?”

How Insurance Helps: You can immediately announce: “We have ₹2 crore insurance coverage specifically for this scenario. The business is financially secure. Here’s our transition plan.”

Confidence restored. Crisis contained.

Immediate Use 4: Handle Debt Obligations

If the deceased key person personally guaranteed business loans (common in SMEs), banks may:

• Demand immediate repayment
• Reduce credit limits
• Increase interest rates
• Downgrade your credit rating

How Insurance Helps: Use payout to repay loans or provide alternative security, maintaining banking relationships.

Immediate Use 5: Fund Buy-Sell Agreement

In partnerships, if Partner A dies, Partner B often needs to buy out Partner A’s shares from their family. Without cash, this creates conflict.

Buy-Sell Agreement + Keyman Insurance = Solution: Policy payout provides cash to buy the deceased partner’s shares at pre-agreed valuation, keeping business control intact.

How Much Coverage Does Your Business Actually Need?

There’s no magic formula, but here are three practical methods:

Method 1: Multiple of Compensation (Conservative Approach)

Formula: Key Person’s Annual Compensation × 5 to 10

Example:

• CTO salary: ₹30 lakhs/year
• Coverage: ₹1.5 crores (5x) to ₹3 crores (10x)

Best for: Standard roles where replacement is possible but expensive

Method 2: Profit Contribution (Aggressive Approach)

Formula: Annual Profit Attributed to Key Person × Recovery Years (3-5)

Example:

• Sales Head drives ₹3 crore revenue
• Net profit margin: 20% = ₹60 lakhs profit
• Recovery time: 3 years
• Coverage: ₹60L × 3 = ₹1.8 crores

Best for: Revenue-generating roles like sales, business development

Method 3: Cost-Based (Practical Approach)

Formula: Add up all costs of replacing them

Example:

• Recruitment costs: ₹8 lakhs
• Training: ₹5 lakhs
• 12-month salary for replacement: ₹40 lakhs
• Lost productivity: ₹30 lakhs
• Client retention costs: ₹20 lakhs
• Total: ₹1.03 crores

Best for: Operational roles where impact is measurable

My Recommendation: Use the Highest Number

Run all three calculations. Take the highest figure. Why? Because you’re trying to protect against worst-case scenarios, not average ones.

Real Example:

For a 40-year-old Founding CEO of a ₹10 crore revenue startup:

• Method 1: ₹50L salary × 10 = ₹5 crores
• Method 2: ₹2 crore attributed profit × 4 years = ₹8 crores
• Method 3: ₹6 crores (replacement + revenue loss + reputation damage)

Recommended Coverage: ₹8 crores (Method 2’s highest figure)

What Does Keyman Insurance Actually Cost?

The good news: Pure term insurance is relatively affordable compared to the protection it provides.

Important note: The figures below are indicative only and based on typical market rates as of early 2026. Actual premiums have increased approximately 15-20% industry-wide since 2025. Always obtain current quotes from multiple insurers for accurate pricing.

Approximate Premium Ranges (Annual – Indicative Only):

*Assumptions: Non-smoker, standard health profile, no medical loading.
Excludes: GST (currently 18% on life insurance premiums), any occupation-based loading, or medical condition-related charges. Actual premiums may be significantly higher based on individual health profile and insurer underwriting.

Factors affecting premium:

• Age (older = more expensive)
• Health status (medical conditions increase premium or may lead to rejection)
• Smoker vs non-smoker (smokers typically pay 40-50% more)
• Occupation risk (high-risk jobs = higher premium or loading)
• Sum assured (higher coverage = higher premium, though not always proportionally)
• Policy term (longer term = slightly higher annual premium)
• Individual insurer pricing and underwriting philosophy

Pro Tip: Obtain fresh quotes from at least 3-4 insurers. Premiums can vary 20-40% for identical coverage due to different underwriting models and pricing strategies.

Tax Treatment: The Part Everyone Gets Wrong

This is crucial, Keyman Insurance has DIFFERENT tax treatment than personal life insurance.

On Premiums (What Company Pays)

Tax Treatment: Fully deductible as business expense under Section 37(1) of Income Tax Act

Example: Your company pays ₹1 lakh annual premium for Keyman Insurance.

• ₹1 lakh reduces your taxable profit
• If corporate tax rate is 25%, you save ₹25,000 in taxes
• Effective cost to company: ₹75,000

Important: Premium should be “wholly and exclusively” for business purposes. If key person owns majority shares, tax authorities might question it.

On Payout (What Company Receives)

Tax Treatment: TAXABLE as business income under normal circumstances

Yes, you read that right. Unlike personal life insurance where death benefit is tax-free under Section 10(10D) of the Income Tax Act, Keyman Insurance payouts received by the company are generally fully taxable as business income.

Why Section 10(10D) doesn’t apply to company-owned Keyman policies: Section 10(10D) provides exemption for policies on the life of the policyholder, their spouse, or children. In Keyman Insurance, the company is the policyholder insuring an employee/director, this doesn’t fall within the scope of Section 10(10D) as defined in the Income Tax Act.

Example: Key person dies. Company receives ₹2 crore payout.

• ₹2 crore added to company’s taxable income
• Taxed at applicable corporate tax rate (typically 25-30%)
• Tax liability: approximately ₹50-60 lakhs
• Net benefit to company: approximately ₹1.4-1.5 crores

Why this matters: When calculating coverage needed, factor in the tax impact. If you need ₹1.5 crores net benefit, you should purchase ₹2+ crores coverage to account for taxes.

Important exception – Post-assignment scenario: If the company later assigns (transfers ownership of) the policy to the employee, and the employee continues it as their personal policy by paying premiums themselves, then upon the employee’s death, the payout to their nominee may qualify for Section 10(10D) exemption as it has become a personal policy. However, the assignment process itself may have tax implications. Consult your Chartered Accountant for specific guidance on assignment taxation.

If Key Person Leaves the Company

Option 1: Policy Lapses

• Company stops paying premiums
• Policy terminates
• No one gets anything

Option 2: Assign Policy to Employee (Recommended)

• Company transfers ownership to the departing employee
• Employee continues paying premiums from their own pocket
• It becomes their personal term insurance
• Death benefit (if it occurs) now goes to their family
• For employee: Now the payout becomes tax-free under Section 10(10D) because it’s their personal policy

Tax Angle on Assignment: The transfer itself may have tax implications depending on how the transaction is structured. Consult your CA.

The Downsides and Limitations You Should Know

Let me be honest about where Keyman Insurance falls short:

Limitation 1: Only Covers Death (Mostly)

Standard Keyman Insurance pays only on death. If your key person:

• Takes a better job elsewhere → No payout
• Retires early → No payout
• Gets poached by competitor → No payout
• Has a falling out and quits → No payout

Partial Solution: Some insurers offer critical illness or disability riders, providing payout if key person is diagnosed with specified illnesses or becomes permanently disabled. But these add 30-50% to premium.

Limitation 2: Premium Burden on Small Businesses

For a bootstrapped startup with ₹30 lakh annual revenue, paying ₹1 lakh/year for insurance (3.3% of revenue) is painful.

Reality Check: Many small businesses skip it for this reason, which is exactly when they’re MOST vulnerable.

Limitation 3: Doesn’t Cover Market Risk or Bad Management

If your business fails because:

• Market crashed
• Product didn’t find PMF
• Competitor launched better solution
• You made bad strategic decisions

Keyman Insurance pays nothing. It only protects against human capital risk.

Limitation 4: Zero Benefit to Employee or Family

The payout goes 100% to the company. The key person’s family gets NOTHING from this policy (unless there’s a separate personal policy or the policy is assigned before death).

This feels weird to many key persons: “You’re betting on my death and my family doesn’t benefit?”

Solution: Many companies buy TWO policies:

1. Keyman policy (company pays, company benefits)
2. Personal term insurance for the key person as part of compensation (company pays, employee’s family benefits)

Everyone’s protected.

How to Actually Buy Keyman Insurance (Step-by-Step)

Step 1: Identify Key Persons

Gather your leadership team. Ask: “If this person were suddenly unavailable for 12 months, what would happen to the business?”

If the answer is “We’d be in serious trouble,” they’re a key person.

Step 2: Calculate Coverage Needed

Use the three methods I explained earlier. Get to a specific number.

Step 3: Get Key Person’s Consent

Have a conversation: “We want to protect the business against losing you. This policy is for the company’s benefit, not yours, but we think it’s necessary. Are you okay with this?”

Get written consent.

Step 4: Shop for Quotes

Approach 3-4 insurers. Submit:

• Key person’s age, health details
• Sum assured needed
• Policy term
• Company details (for underwriting)

Major insurers offering Keyman Insurance in India:

• HDFC Life
• ICICI Prudential
• SBI Life
• Max Life
• Bajaj Allianz
• LIC of India (typically through group or institutional schemes rather than standard retail individual term products, verify current offerings with LIC branch or authorized agent)

Note on LIC: Life Insurance Corporation of India may offer Keyman coverage under specific group insurance schemes or institutional arrangements rather than as a standalone retail individual term product. The process, documentation, and eligibility criteria for LIC Keyman policies may differ from private insurers. Always confirm current product availability, structure, and requirements directly with LIC.

Step 5: Medical Examination

For coverage above ₹50 lakhs-₹1 crore (varies by insurer), key person needs medical tests:

• Blood tests
• Urine tests
• ECG
• Sometimes: Stress test, ultrasound (for higher amounts or older ages)

Step 6: Underwriting and Approval

Insurer reviews:

• Medical reports
• Company financials (to ensure you can afford premiums)
• Key person’s actual importance to business
• Shareholding structure

Approval takes 2-4 weeks typically.

Step 7: Policy Issuance

Company signs as policyholder. Premium payment starts. Coverage begins.

Real-World Scenarios: When Keyman Insurance Saved the Day

Note: The following are hypothetical, composite scenarios based on general industry patterns and anonymized experiences. They are illustrative examples only and not representations of specific cases. Actual outcomes will vary significantly based on individual circumstances.

Case 1: The Startup CTO (Hypothetical Scenario)

Company: SaaS startup, 3 years old, approximately ₹5 crore revenue
Key Person: 38-year-old CTO who built the entire product
Policy: ₹2 crore coverage, approximately ₹40,000 annual premium
Event: CTO passed away in accident

What Happened (Hypothetical):

• ₹2 crore payout received (approximately ₹50 lakh went to taxes, ₹1.5 crore net benefit)
• Used approximately ₹30 lakhs to hire senior developer
• Used approximately ₹20 lakhs for consultants to document codebase
• Used approximately ₹60 lakhs to cover revenue shortfall during 9-month transition
• Remaining funds as buffer for operational continuity

Outcome (Hypothetical): Business survived transition, recovered within 18 months, continued operations.

Lesson: Without insurance coverage, the company would likely have faced severe financial distress or closure within 6-12 months.

Case 2: The Family Manufacturing Unit (Hypothetical Scenario)

Company: Auto parts manufacturer, 25 years old, approximately ₹15 crore revenue
Key Person: 52-year-old Managing Director
Policy: ₹5 crore coverage, approximately ₹2 lakh annual premium
Event: MD diagnosed with terminal illness, passed away 8 months later

What Happened (Hypothetical):

• ₹5 crore payout received
• Used approximately ₹1 crore to settle bank loans
• Used approximately ₹2 crore for ownership transition arrangements
• Used approximately ₹1.5 crore to hire professional CEO
• Remaining funds for operational continuity

Outcome (Hypothetical): Family retained business control, business continued operations, eventually stabilized.

Lesson: Without insurance, debt servicing issues and succession conflicts could have forced business liquidation.

Should YOUR Business Buy Keyman Insurance? (Decision Framework)

Definitely buy if:
✓ You’re a startup with 1-2 founders and if one dies, business dies
✓ You have a single revenue rockstar (sales/BD head) generating 40%+ of revenue
✓ You have debt personally guaranteed by a key person
✓ Your business depends on specialized knowledge held by one person
✓ You have investors or lenders who expect risk mitigation ✓ You’re planning exit/IPO and need clean risk profile

Probably buy if:
✓ You’re an SME with 2-5 critical people
✓ You have strong client relationships tied to specific individuals
✓ You’re in a high-skill industry (tech, pharma, engineering)
✓ You have succession planning concerns

Maybe skip if:
✓ You’re a large company with deep talent bench
✓ No single person is irreplaceable
✓ You’re bootstrapped and literally can’t afford premiums
✓ Your business is diversified enough to absorb loss of any one person

Quick Test: If losing your key person would cause revenue drop of 25%+ or operational paralysis for 6+ months, you need Keyman Insurance.

Common Questions Business Owners Ask

“Can we insure multiple key persons?”

Absolutely. You should. Buy separate policies for each key person. Many companies insure their top 3-5 people.

“What if the key person is also a majority shareholder?”

This gets tricky. Some insurers have shareholding limits (typically <51% for key person). If they own more, you might face challenges getting the policy or the tax deduction could be questioned. Consult both insurance advisor and CA.

“Can we increase coverage later?”

Generally no. You’d need to buy a new policy with fresh medical underwriting. Better to buy adequate coverage upfront.

“What if the key person develops health issues?”

Once the policy is active, pre-existing conditions at the time of purchase are covered (after waiting periods if applicable). But if you try to buy a policy after someone has health issues, premiums will be very high or coverage may be denied.

“Isn’t this morbid, betting on someone’s death?”

It can feel that way, but reframe it: You’re protecting 50-100-500 other people’s livelihoods (employees and their families). That’s responsible leadership, not morbid.

Final Checklist Before You Buy

☐ Identified all key persons (not just founders)
☐ Calculated coverage needed using at least 2 methods
☐ Got written consent from each key person
☐ Obtained quotes from minimum 3 insurers
☐ Factored tax implications into coverage amount (add 30-40% for taxes)
☐ Discussed with CA about premium deductibility
☐ Set up buy-sell agreement (if partnership)
☐ Considered critical illness/disability riders
☐ Planned for what happens if key person leaves company
☐ Budgeted for annual premiums for next 5+ years
☐ Read policy document completely (exclusions, waiting periods)
☐ Set up separate personal term insurance for key person as well (if not already done)

The Bottom Line

Keyman Insurance isn’t sexy. It’s not something you brag about at startup meetups. But neither is having a fire extinguisher in your office, until there’s a fire.

For ₹50,000-1,00,000 a year, you’re buying business continuity insurance worth crores. You’re protecting your employees’ jobs, your investors’ capital, your customers’ trust, and your own sanity.

The best Keyman Insurance is the one you never need to claim. But if you DO need it, not having it could mean the difference between business survival and business obituary.

Don’t wait for a health scare or near-miss to think about this. By then, it’s too late, either premiums become unaffordable or coverage is denied altogether.

Protect your business. Protect your people. Protect your life’s work.

Ready to Get Protected?

To explore Keyman Insurance for your business:

• Consult with an IRDAI-licensed insurance advisor specializing in corporate insurance policies
• Contact insurance brokers who can provide comparative quotes from multiple insurers
• Visit your preferred insurer’s branch or website to inquire about Keyman Insurance products
• Discuss with your Chartered Accountant about tax implications specific to your company structure

Finding advisors: Search for “IRDAI licensed insurance advisor” or “corporate insurance broker” in your area, or ask for referrals from your CA, company secretary, or business attorney.

Comprehensive Disclaimer:

This article is for general educational and informational purposes only and does not constitute financial, legal, tax, or insurance advice.

Date Sensitivity: Last Updated: February 2026. Tax laws and insurance regulations are subject to change, particularly through annual Union Budget announcements. Verify all tax treatment information after Budget 2026 and subsequent Finance Act amendments. Insurance product features and IRDAI regulations can also be updated through circulars and notifications.

IRDAI Compliance: Keyman Insurance products mentioned are subject to Insurance Regulatory and Development Authority of India (IRDAI) regulations. As per IRDAI Master Circulars and guidelines on term insurance products (current as of early 2026), Keyman Insurance must be structured strictly as pure term life insurance only for risk coverage purposes. Endowment, whole life, money-back policies, or Unit Linked Insurance Plans (ULIPs) are not permitted for Keyman Insurance purposes.

Important: Policies not meeting IRDAI’s term insurance criteria for Keyman coverage may face complications during underwriting or claims. Always verify that your policy structure complies with current IRDAI guidelines. For the latest regulatory position, check the IRDAI official website (irdai.gov.in) or consult with insurers directly.

Regulatory Changes: IRDAI regulations evolve. While this article reflects understanding of guidelines as of early 2026, specific requirements regarding policy structure, riders, underwriting, and documentation may change. Do not rely solely on this article for regulatory compliance.

Tax Treatment: The tax implications described are based on general interpretations of the Income Tax Act, 1961 as understood in early 2026:

• Premium deductibility under Section 37(1): Generally allowed as business expense if the policy is wholly and exclusively for business purposes and the company has insurable interest
• Payout taxation: Generally treated as taxable business income when received by the company
• Section 10(10D) exemption: Does NOT apply to Keyman Insurance payouts while the policy is company-owned, as Section 10(10D) specifically exempts policies on the life of the policyholder, spouse, or children, not employees/directors insured by the employer
• Post-assignment to employee: If ownership is transferred to the employee and they maintain it as a personal policy, subsequent payout to their nominee may qualify for Section 10(10D) exemption subject to all conditions being met

Critical caveats:

• Tax treatment can vary based on shareholding patterns, relationship of key person to the business, company structure (proprietorship/partnership/company), and specific facts
• Premium deductibility may be challenged by tax authorities if the key person is a majority shareholder or promoter, as it could be viewed as personal benefit rather than business expense
• Recent and future amendments to the Income Tax Act, judicial interpretations, and CBDT circulars can change the tax position
• Verify tax treatment with a qualified Chartered Accountant familiar with corporate taxation and insurance before making purchase decisions

Post-Budget 2026: Tax laws are particularly subject to change through annual Union Budgets. Any changes announced in Budget 2026 (or subsequent amendments) may alter the tax treatment described in this article. Always verify current tax provisions.

Shareholding and Eligibility: Shareholding restrictions or limits for Keyman Insurance (such as key person owning less than 51% shares, or combined family shareholding thresholds) are insurer-specific practices, not universal IRDAI mandates. Different insurers apply different criteria based on their underwriting philosophy and risk assessment. Some insurers may have no explicit shareholding caps but scrutinize policies on a case-by-case basis. Others may have defined thresholds.

Action required: Always verify specific eligibility criteria, including any shareholding-related requirements or restrictions, directly with your chosen insurance provider before applying. Eligibility accepted by one insurer may be declined by another. Do not assume any particular shareholding threshold applies universally across all insurers or products.

Premium and Coverage Figures: All premium amounts and coverage calculations provided are approximate, illustrative examples only and will vary based on: key person’s exact age, health status, medical history, smoking/tobacco use, occupation risk category, sum assured chosen, policy term, insurance company selected, and prevailing premium rates at time of purchase. Actual premiums may be significantly higher or lower. Medical underwriting is required for higher sum assured amounts.

Medical Examination: Medical examination requirements, tests needed, and sum assured thresholds triggering such exams vary by insurer and can change over time. The information provided is indicative only.

Policy Features: Availability of riders (critical illness, disability, etc.), terms, conditions, exclusions, waiting periods, and other policy features vary by insurance company and specific product. Not all insurers may offer certain features mentioned. Always read the complete policy document, terms and conditions, and exclusions before purchasing.

No Guarantee of Coverage: Submission of a Keyman Insurance application does not guarantee acceptance. Insurers conduct underwriting based on medical reports, company financials, business risk profile, and other factors. Applications can be rejected, accepted with loading (higher premiums), or accepted with exclusions.

Consult Qualified Professionals: Before making any decisions regarding Keyman Insurance:

• Consult a life insurance advisor or broker specializing in corporate insurance
• Consult a qualified Chartered Accountant for tax implications specific to your company structure
• Consult a lawyer for buy-sell agreements and legal documentation
• Consult your company’s board, partners, or advisors as appropriate

No Endorsement: Mention of specific insurance companies (HDFC Life, ICICI Prudential, SBI Life, Max Life, Bajaj Allianz, LIC of India) is for informational purposes only and does not constitute endorsement or recommendation. Readers should compare products from multiple insurers and make decisions based on their specific needs.

Official Sources: For the most current and accurate information:

• Visit IRDAI official website for regulatory guidelines
• Refer to individual insurer websites for current product offerings
• Consult with licensed insurance advisors with IRDAI registration
• Review official policy documents and product brochures

Regional Considerations: Keyman Insurance is available throughout India,. Coverage is not limited by geography, though premium rates may have minimal regional variations based on location risk factors.

Business Impact: Keyman Insurance addresses only human capital risk. It does not protect against market risks, business model failures, competitive threats, technological disruption, or management decisions. Comprehensive business risk management requires multiple strategies beyond insurance.

Ready to start? Call or WhatsApp 7651032666 or visit lifeinsuranceadvisor.in

Insurance is subject to risk. Please read all policy terms and conditions carefully before purchase.

Last Updated: 21 February, 2026. Information current as of publication date and subject to change.