The 60-second version
Keyman policy protects business against founder death — company pays premium, names itself beneficiary. I document board resolution, assess 37(1) deductibility, and map CG on surrender.
Company is policy owner — founder is life assured
Returning founders with Pvt Ltd or LLP can buy keyman on own life — company pays premium and claims deduction if revenue link proven.
Proceeds on death are generally not taxable in company hands — surrender or maturity may trigger capital gains.
Board resolution must state business protection purpose — tax officer scrutinises related-party premium.
Personal cover: term life guide.
Keyman vs personal term
| Aspect | Keyman | Personal term |
|---|---|---|
| Owner | Company | Individual |
| Beneficiary | Company | Family |
| Premium payer | Company | Individual |
| 80C deduction | No | Yes up to cap |
| 37(1) business deduction | If linked to revenue | N/A |
Keyman policy sequence
Board resolution
Authorise policy on founder life.
Insurer proposal
Company as proposer, founder examined.
Premium booking
Expense in P&L with TDS if commission.
Annual review
Sum assured vs revenue / loan covenant.
Exit event
Surrender triggers CG computation in books.
Policy flow
Keyman kit
- Board resolution.
- Policy schedule.
- Premium invoices.
- Founder medical.
- Loan covenant copy if any.
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LLP eligible?
Yes if LLP pays premium and is beneficiary.
Multiple founders?
Separate policies — aggregate disclosure in 3CD if audited.
Founder leaves company?
Surrender or assign — CG event.
US founder US person?
US tax on company-owned policy — cross-border review.
GST on premium?
Life insurance exempt — no ITC.
10(10D) on death?
Company receipt — consult CA; personal 10(10D differs.
The plan is only as good as the sequence.
Tax, banking, schools, shipping — they all have dependencies. A wrong order costs months and lakhs. Get it right.