What is Key Man Insurance?

What is Key Man Insurance?
How does it works?
What all papers required for proposal?

Keyman insurance is taken by a business firm on the life of key employee(s) to protect the firm against financial losses, which may occur due to the premature demise of the Keyman.

Who is a Keyman?
The 'keyman' here would be any person employed by a company having a special skill set or substantial responsibilities and who contributes significantly to the profits of that organisation.
In case of an unfortunate eventuality to the 'keyman', two types of losses can arise -
(a) Loss arising from profit reduction for the company and
(b) Costs for the company in replacing the keyman.

Thanks Vivek for answering my query! just wondering how to find out, who is keyman for a company.
Is there any method to find out?
How the insurance company judge that this person id keyman?

Who can be a Keyman?
Anybody with specialized skills, whose loss can cause a financial strain to the company are eligible for Keyman Insurance. For example, they could be:

1. Directors of a Company
2. Key Sales Person
3. Key Project Managers
4. People with Specific Skills etc.

Eligibility for keyman insurance:
The ‘keyman insurance (KMI) is allowed to the employee, if he satisfies the following condition -

1. The ‘keyman’ should hold less then 51% shares of company.
2. The total number of shares of the company held by the keyman and his family should be less then 70%
3. The keyman should be literate.

Thanks Vivek! Can you please also reply to my first question - What all papers required for proposal?

Keyman Insurance proposal requirements:

1. Copy of Memorandum & Articles of Association
2. Copies of Audited Balance. Sheet and P&L A/Cs for previous 3 years
3. Certified true copy of board resolution passed in the Meeting of Board of Directors containing following information:
a) Sum assured desired
b) Name & sig. of the person who is authorised to complete proposal papers
c) The use of seal of the company
4. Key man Questionnaire is to be completed in the persons hand format and the same is to be signed by the authorised person under the seal of the Company
5. Copies of I.T.returns of the Co. for proceeding 3 yrs
6. Consent for the endorsement to be placed on the policy
7. Revised Key Man Questionnaire annexed is to be attached.

Source - licindia.in