What is Key Man Insurance?
Keyman or key man insurance is a business insurance. A key man insurance is used to ensure continuity of cash flow for the business. In the event a key man, key person or important key revenue earner for the company is disabled or dies.
The keyman insurance tax deductible is governed by the income tax laws of Malaysia. Download this guideline from LHDN or at the end of this article.
A keyman or key man or key person could be a key employee, shareholder or owner of the business or company. In the event an unfortunate incident happens, such as an accident or disease, resulting in death or permanent disability of the person, the business will be severely impacted from possible drops in revenues or income.
The Keyman Takaful insurance is an Islamic compliant keyman insurance policy. This is based on the AIA A-Life Signature-i (ALSI) plans. These can include benefits payments from the Takaful Disability and Critical Care riders.
The A-Life Signature-i is a Syariah compliant fixed regular plan which covers death and total permanent disability (TPD). The minimum coverage amount is RM500,000.
These are Syariah compliant investment linked insurance plans by AIA Public Takaful.
The business needs to survive and continue beyond this impact. The business success and business continuity depends on continued income to cover the income lost.
To offset this possible loss of profit or drop in income, the company purchases a life insurance policy on that key person. This key man life insurance policy can be an accident policy, term life, whole life insurance policy or the highest paying policy, the investment-linked life insurance policy. The AIA insurance protection plan with low premiums is the term life policy.
The company will be paying the premiums for this risk, the key man risk insurance policy. And the beneficiary is the company.
The insurance proceeds can be used to pay off debts, distribute as income and to be used as how the company sees fit. Under Malaysian tax regulations, the proceeds cannot be paid to the key person or their family directly.
There are other tax implications. If the keyman insurance is an accident or term insurance, then the premium paid is allowed to be deducted as an expense. Do note that there must be zero investment elements in these policies. However the proceeds will be taxable because the premiums were deductible earlier
If the keyman insurance is whole life or investment-linked insurance policy, the premium paid cannot be deducted as an expense. This is because there is an element of investment and it is treated as an asset. The proceeds will not be taxable.
If the keyman insurance purchased is on the life of a shareholder or business owner, the premium paid by the company is not deductible. This is treated as a benefit for shareholder and their families besides being a cover for risk of business loss.
More details on the inland revenue board’s document on key-man insurance, Public Ruling No: 2/2003.
What is the coverage provided by a Keyman Insurance?
The keyman insurance is insurance to protect a small business usually. The insurance gives the company cover for the short term loss or impact. So the coverage depends on how much is the calculated business loss. Or how much you want to be covered for. The underwriting process will then depend on the premium payment required.
It must be borne in mind what the keyman brings to the business and company:
Goodwill for the business
Sales of products and services
Creating profits for the business
Business success from their experience, knowledge and skills.
The premiums for this insurance is very low to cover for the risk of potential financial disaster to the company and its stakeholders. You have to decide how much you want to be protected for. Then ask us for a proposal.
Contact our AIA Life Planning Advisor to get in touch with us and start your personal coverage or choose your plan now. Get covered correctly. Be advised correctly. Call today to be advised on the best insurance protection personalized for you. Or send us the form below on your interest.