BUSINESS INSURANCE 1. KEYMAN INSURANCE Eligibility of companies: Keyman insurance is open to all categories of business firms except: 1. Proprietorship firms owners. 2. Firms where shareholding of Key person is over 75% and Family shareholding of Key person is over 90%. (Family will include spouse and minor children only). Proposals beyond these limits but less than 100% holding by Keyman/Family can be considered at CUS on case to case basis. 3. Company not making profits for the last three consecutive years. 4. When the profit and turnover of the company are on the decline. How the amount of Insurance is arrived at? A. Directors of Public limited company, Private limited Company with at least 10 employees and Partners of Partnership firm 1. Multiple of Keyman s Compensation Package: The Insurance will be limited to 10 times of Keyman s compensation package including perks. (The notional value of the perks can be taken as 30% of the gross annual salary). 2. Gross profit method: The Insurance will be limited to 2-times of average Gross profit for last 3-years (before depreciation and taxation). 3. Net profit method: The Insurance will be limited to 5-times of average net profit for last 3- years (after depreciation and taxation). The Maximum insurance allowed will be restricted to least of the amounts arrived at by above three methods and distributed among all the key persons proposed for. There is no restriction on turnover of partnership firm. Prerana - Underwriting Rules Simplified / 117
B. Private limited Company with less than 10 shareholders/employees Maximum keyman insurance allowed will be restricted to 3 times of average net profit of last 3 years. C. Companies where 3 years P/L accounts are not available: Companies having 2 years P/L account: Maximum keyman insurance allowed will be restricted to 2 times of average net profit of last 2 years. Companies having 1 year s P/L account: Maximum keyman insurance allowed will be restricted to equal to net profit of one year. D. Keyman Insurance to Employees of Public limited/ Private limited/partnership/ Proprietary firms: Keyman insurance to employees of above firms will be restricted to 10 times the salary for the latest financial year as reflected in Form No.16. The firm should be profit making one and the profits for the last three years should justify the cover being allowed. (3 times of average gross profits or 5 times of average net profits, whichever is lower). E. Key Man Insurance on the Basis of Loan Liability: Key man insurance is also considered on the basis of loan liability of the company. If the company has taken a loan from a bank/financial institution, KMI to the extent of 2/3 of the loan can be considered on the life of its Directors, since the repayment of loan is dependant upon the profitability of the company, which to a great extent depends on the Directors. For example, if a company with 3 Directors has raised a loan of Rs. 1.00 crore, S.A. of Rs. 22 lac under KMI can be considered on the life of each Director, in general. The following requirements, apart from usual requirements, must be submitted: Copy of Project Report / viability report submitted with application for loan and agreement regarding the terms and condition of loan. Letter regarding sanction of loan. Proof of loan having been availed of Further, 118 / Prerana - Underwriting Rules Simplified
Term of the policy shall not exceed the repayment term for the Loan. The company should be capable of paying the premium. However, quantum of S.A. will not be restricted to 3 times / 5 times of profit as described earlier. Credentials of the company should justify acceptance of the KMI. Requirements for Key man Insurance proposal (for companies): i) Copy of Memorandum & Articles of Association. ii) Copies of Audited Balance Sheets and Profit & Loss A/cs for preceding 3 years. iii) Certified true copy of Board Resolution passed in the meeting of Board of Directors containing following information :- Sum Assured desired. Name & signature of the person who is authorized to complete proposal papers. The use of seal of the company. iv) Keyman Questionnaire (to be completed in the prescribed format and the same is to signed by the authorized person under the seal of the company). v) Copies of I.T. Returns of the company for preceding three years. vi) Consent for the endorsement for assignment/ surrender to be placed on the policy. vii) Proposal Form No. 340 and usual medical requirements (as applicable to individuals) for Key man. viii) In case of employees: Proof of keyman s salary/ copy of employment contract/individual ITR s/ Form 16 for last 3 years or less as applicable. Requirements for Key Man Insurance under Partnership Firm: Proposal Form in F.No. 340 and usual medical requirements on the life of the Key man Partner. Copy of Deed of Partnership duly attested by the partner authorized to sign insurance proposal along with copy of supplementary Partnership Deed. Prerana - Underwriting Rules Simplified / 119
Copies of Audited Balance Sheet and Profit & Loss A/Cs for the last three years containing schedule of partner s capital A/cs. Copies of Income Tax Returns of the firm for preceding three years duly attested by the authorized partner. Letter of Authority in favour of partner signing the proposal. Plans Allowed: Plan 822- Anmol Jeevan II, and Plan 823- Amulya Jeevan-II. 2. PARTNERSHIP INSURANCE Conditions for the amount of Insurance: All the insurable partners must be insured. Each partner will be insured separately for the amount equal to his/her Capital amount standing to his/her credit as per last assessment year. Keeping in view the growth of the firm, insurance amount of each partner will be increased by giving credit for the Goodwill of the firm. Goodwill of the firm will be equal to total net profit of the last three assessment years. The above Goodwill will be proportionately added to the capital of each partner depending on his share of profit in the firm. Requirements for proposal for Partnership Insurance: Proposal Form in F.No. 340 for each partner. The object of insurance will be to protect against the loss of profit on the withdrawal of capital on the death of a partner. Letter of Authority in favour of partner signing the proposal. Copy of Deed of Partnership duly attested by the partner authorised to sign insurance proposal. Copies of Audited Balance Sheet and Profit & Loss A/Cs for the last 3 years. Copies of ITRs of the firm for preceding 3 years duly attested by the authorised partner. The copy of audited Balance Sheet containing schedule of partner s capital A/cs. 120 / Prerana - Underwriting Rules Simplified
The policy is to be kept unassigned. A clause should be provided in the partnership deed to go in for Insurance on the lives of the partners. For this a supplementary deed has to be provided to include the above clause. NOTE: Usually partnership insurance is to be taken on the lives of all the partners of a firm. Plans Allowed: Plan 822- Anmol Jeevan II, and Plan 823- Amulya Jeevan-II. 3. EMPLOYER EMPLOYEE INSURANCE Eligibility of companies: There is no restriction for companies/ firm proposing on the lives of the Employees. However Employer has to assign the policy in favour of Employee within reasonable time. However the shareholding of the employee should be less than 51% and family holding (i.e. his/her spouse and minor children) should be less than 71% in the employer company. (Ref: CO/U & R / CJP/11-12/104 dated 06/08/2011. ` How the amount of Insurance is arrived at? The maximum Insurance allowed will depend upon the Age and Income of the Employee. The premiums payable by the employer will also be considered as Income for purpose of maximum Insurance. Plans Allowed: All plans except plan 827 allowed to employees under individual insurance are allowed. Procedure to Complete the Proposal: a) The proposals will be treated as individual proposals from the employees concerned irrespective of whether the proponent is an employer or an employee. Prerana - Underwriting Rules Simplified / 121
b) The minimum sum assured shall be determined in terms of the rules relating to financial underwriting for individual assurance taking into account the existing life assurance on the life of the individual. c) If the employer is the proponent, the policy shall be assigned to the life assured at the earliest as per agreement between employee and employer. A separate letter from the employer stating the object of insurance, the restrictions in respect of surrender, loan etc, to be imposed and the condition, timing etc. of assigning the policy to the life assured, should be obtained with an under taking that the letter will form the basis of the contract. d) The proposal should be signed by a person authorised by resolution preferably by one of the directors of a public or private company. The seal of the person signing may be affixed on the proposal form. The restrictions imposed by the employer should be reasonable. Normally, these should not go beyond five years from the date of policy in any case. e) Moral Hazard is a critical area and that needs thorough examination before proposals are finally accepted. To avoid the possible element of Moral Hazard, the following steps may be taken. i. We are to be satisfied that the Sum Assured is within financial restriction applicable to individual assurance. ii. Form No. 340 has to be used for the purpose. However, cover may be restricted to salary including premium payable by the employer and income derived from other sources. iii. We may satisfy ourselves that employer is a well-known reputed commercial organization. iv. The wording of assignment may be prepared by the employer in consultation with his own legal adviser. v. In some instances, employer may like to finance loan towards payment of premium to the employee, proposal form No. 300 may have to be used in such cases. The policy issued may be assigned to employer as a collateral security and re assigned to the policyholder on redemption of debt. 122 / Prerana - Underwriting Rules Simplified