I’ve been advising Indian business owners on life insurance for a long time. And one thing I can tell you with absolute certainty, the conversation that makes the most impact in a boardroom is never about returns or premiums. It’s this simple question:
“If your Head of Sales didn’t show up to work tomorrow, ever, what would your revenue look like in six months?”
The silence that follows is exactly why Keyman Insurance exists.
Most business owners I meet have already heard of it. But when I ask who they’ve insured, the answer is almost always the same: the Founder, the CEO, or the MD. That’s a reasonable start. But in my experience, it’s rarely the most critical one.
This article is not about convincing you that Keyman Insurance matters. It’s about showing you which roles actually carry the most uninsured business risk, and are routinely missed.
Let’s Get the Basics Right First
Before we get into the roles, let me clarify how Keyman Insurance actually works, because there is a significant amount of confusion in the market, particularly around the tax treatment.
Under the Income Tax Act, Section 10(10D), a Keyman Insurance Policy is defined as a life insurance policy taken by an employer on the life of an employee whose death or loss would materially impact the company’s business performance. The company is the proposer, the premium payer, and the beneficiary. The insured is the key employee.
As per standard IRDAI guidelines for Keyman policies, only pure term insurance plans may generally be purchased under this structure. Add-on covers and loans against the policy are not permitted, and the business entity must be the sole nominee and beneficiary.
This is a point I make very clearly to every client: Keyman Insurance is not a wealth-building tool for the employee. The claim money goes to the business, not to the employee’s family. The key person still needs a separate personal term plan for their own family’s financial security, and those are two completely different conversations.
The Tax Picture in 2026 – Read This Carefully
A lot of business owners get the tax treatment wrong on both ends, premiums and payouts. Let me be direct.
On Premiums: Premiums paid by the company for a Keyman Insurance Policy may be claimed as a business expense under Section 37(1) of the Income Tax Act, 1961, provided the company is both the proposer and the beneficiary. This directly reduces the company’s taxable profit and is supported by longstanding CBDT circulars and consistent judicial positions including CBDT Circular 762.
On Payouts: This is where most business owners are surprised. Insurance payouts received by the company are treated as business income under Section 28(vi) of the Income Tax Act and do not qualify for exemption under Section 10(10D). The claim amount is taxable at the company’s applicable rate, typically 25% under the new tax regime or 30% under the old regime for domestic companies, following the Finance Acts of 2019 and 2025. Budget for this from day one.
On the “Assignment Loophole”: Over the years, some businesses tried to assign the Keyman policy back to the key employee before maturity, hoping the proceeds would then be received tax-free in the employee’s hands. The Finance Act 2013 introduced Explanation 1 to Section 10(10D) specifically to close this door. Post-2014 Keyman policies that are assigned to employees continue to be treated as Keyman Insurance policies, and the proceeds remain taxable accordingly. Budget 2025 made no reversals to this position.
My advice: don’t try to structure around this. It has been extensively litigated, and the tax authorities are alert to it. Structure the policy cleanly, account for the payout as business income, and use the premium deduction legitimately.
On GST: One clarification worth noting, as per CBIC Notification 2025, premiums on pure term Keyman Insurance policies continue to be exempt from GST as of April 2026. This makes the net cost of coverage even more favourable for businesses than many realise.
On IRDAI Documentation: Insurers require specific documentation before issuing a Keyman policy. In practice, this includes copies of the Memorandum and Articles of Association, a certified board resolution passed by the Board of Directors specifically naming the key person to be insured, and audited financial records, Profit and Loss Account and Balance Sheet, for the last three completed financial years (e.g., FY 2022–23 to FY 2024–25 as of 2026). These documents establish both insurable interest and the basis for the sum assured. Requirements may vary slightly by insurer, always confirm with your chosen provider.
How Much Cover Is Justified?
Insurers assess the appropriate sum assured on a case-by-case basis depending on demonstrated business need, insurable interest, and underwriting policy. Common benchmarks used in the industry include:
- Up to 10× the key person’s annual remuneration or CTC
- 3× average gross profit or 5× average net profit over the last three years, typically whichever figure is the lower, justifiable amount
- The outstanding loan exposure linked to the key person’s role or relationships
As one commonly used illustrative framework: if a Sales Head contributes ₹2 crore to annual profits, would cost ₹40–50 lakh to recruit and replace, and the company has a ₹1 crore working capital loan partly dependent on their client relationships, the Keyman cover could reasonably sit in the ₹7–11 crore range. This is illustrative only. The final sum assured depends entirely on the insurer’s underwriting assessment and what can be demonstrated through financial documents.
The Five Roles Most Businesses Are Getting Wrong
Role #1: The Top Sales Executive – Your Revenue Engine
The Founder brings vision. But the Sales Director brings the actual money in.
In most mid-sized Indian companies, whether you’re in B2B services, manufacturing, or distribution, a disproportionate share of active revenue sits with one or two senior sales professionals. They carry the client relationships. They know what price to quote, which decision-maker to call, and how to close a deal that’s been stalled for three months.
When that person is suddenly gone, clients don’t pause and wait. They call your competitor.
Where the Keyman payout helps: The claim amount can cover the cash flow shortfall over the six to twelve months it takes to hire, onboard, and ramp up a replacement. It buys the business time without forcing emergency cost-cutting or distressed borrowing.
This is the role I most often have to make a case for in coverage discussions. Business owners protect themselves but forget the person actually carrying the revenue number.
Role #2: The CTO or Lead Developer
India’s SaaS, fintech, and deeptech sectors have grown roughly tenfold over the last decade from 2016 to 2026, according to NASSCOM. In many of these companies, the CTO or lead developer isn’t just managing a team, they are the architecture.
Proprietary algorithms, system design decisions, codebase logic, a significant portion of this knowledge lives in one person’s head. You cannot replace that with a job listing and a two-week notice period.
Where the Keyman payout helps: The business can use the funds to bring in senior interim technical consultants at market rates, pay retention bonuses to keep the junior team stable, or fund an accelerated search without compromising on hiring quality. For companies with investor obligations or committed product roadmaps, this continuity window is not a luxury, it’s a necessity.
Role #3: The Operations Manager in Manufacturing and Logistics
This is the most underrated role on this list, and it is almost never covered.
The Operations Manager in an Indian manufacturing or logistics company carries an enormous amount of informal institutional knowledge. They know which vendor actually delivers on time. They know the workaround when the primary freight lane gets disrupted. They know which clearing agent to call on a Saturday evening to move a stuck shipment.
None of this is written down anywhere.
Where the Keyman payout helps: The claim can cover overtime costs during the transition period, fees for interim management support, expedited freight when normal vendor relationships break down, and the recruitment costs of a senior replacement. The supply chain disruption that follows the loss of a capable Operations Manager can cost significantly more than any premium ever would, especially where active delivery contracts carry financial penalty clauses.
Role #4: The R&D or Product Innovation Head
If your business operates in pharmaceuticals, FMCG, auto components, agri-tech, or any sector where product development is central, this person represents the company’s future earnings potential walking around in human form.
The loss of the R&D head doesn’t just halt current projects. It can freeze the patent pipeline, delay regulatory filings with bodies like CDSCO, and cause investor confidence to erode. Valuations in product-led businesses are often tied to the credibility of the innovation roadmap, and that roadmap is tied to one or two specific people.
Where the Keyman payout helps: The funds can be deployed to outsource specific projects to contract research organisations while a permanent replacement is found, or to offer a competitive signing bonus to attract the right talent from the market. In pharma especially, where regulatory timelines cannot simply pause, having that financial cushion is a strategic requirement, not an optional add-on.
Role #5: The Chief Financial Officer
Banks lend to companies, but they evaluate the CFO.
This is something most business owners discover only when it’s too late. Senior banking relationships, working capital lines, and loan covenant compliance are often managed through the CFO’s personal credibility with lenders. The CFO explains your numbers, negotiates your interest terms, and keeps your audits clean.
When that person is suddenly absent, banking relationships can deteriorate quickly. Lenders become cautious. Covenants get scrutinised. Renewals get complicated.
Many banks and NBFCs, including major lenders like SBI and HDFC, view Keyman Insurance favourably and may recommend or require it as part of their credit risk assessment for working capital limits, particularly for mid-sized businesses. If you haven’t looked at your loan sanction letters recently, it’s worth checking whether this condition has been included.
Where the Keyman payout helps: The claim amount gives the company a buffer to maintain lender confidence, cover the transition period professionally, and fund the high recruitment cost of a qualified senior finance professional, which in today’s market typically includes a meaningful signing bonus and several months of onboarding time.
A Story I Haven’t Forgotten
A few years ago, I worked with a family-owned export business in western India. The patriarch had a good personal term plan in place. His son-in-law, who had built and managed the entire overseas buyer network from scratch over fifteen years, had nothing.
The son-in-law passed away unexpectedly. Within eight months, three of the company’s top five overseas buyers had moved to competitors. The business survived, but it took nearly four years to rebuild what was lost.
They had insured the wrong person.
Your Action Steps Before the Financial Year Ends
1. Review your human capital, not just your balance sheet. Make a list of the five people whose sudden absence would most disrupt your business over the next three years. Be honest, it is often not the most senior person by title.
2. Check your loan sanction letters. Many banks are now explicitly mentioning Keyman Insurance as part of the conditions attached to working capital or term loan renewals. You may already have an obligation you haven’t acted on.
3. Structure the policy correctly from day one. Premiums paid by the company should be recorded as a business expense in your books for the Section 37(1) deduction to hold up under scrutiny. The payout, when it arrives, must be accounted for as taxable business income at the applicable corporate rate, not treated as a receipt outside the profit and loss account.
4. Don’t skip the board resolution. Issuance of a Keyman policy requires a specific board resolution naming the key person to be insured. This is not optional paperwork, it is the legal foundation of the policy’s compliance with IRDAI requirements.
5. Involve your CA from the beginning. Because the payout is taxable business income, having your Chartered Accountant involved in structuring the cover amount and accounting treatment from the outset will save you complications at the time of claim. This is a step most advisors forget to mention, and one of the most practical things you can do.
Keyman Insurance is, in my view, one of the most cost-effective business continuity tools available to Indian companies today. The premium is a fraction of what the business stands to lose. And unlike most insurance products, this one directly protects the company’s ability to survive, borrow, and grow, not merely compensate for a tragedy after the fact.
If you’d like to evaluate which roles in your business carry the most uninsured risk, I’d be glad to do a no-obligation assessment with you.
Disclaimer: This article is intended for general information and awareness purposes only. It does not constitute legal, tax, or financial advice. Tax benefits and treatment under the Income Tax Act, 1961, including under Sections 37(1), 28(vi), and 10(10D), are subject to amendment, individual circumstances, and the satisfaction of the Assessing Officer. GST treatment is based on CBIC Notification 2025 and may be subject to revision. Insurance products are subject to the terms, conditions, medical underwriting, and issuance policy of the insurer and are regulated by IRDAI. Please consult a qualified CA and IRDAI-licensed advisor for guidance specific to your business situation before purchasing any insurance product. The author is an IRDAI-registered Life Insurance Advisor.