Can I name my wife as the nominee in Keyman insurance?

No. In Keyman insurance, the company is the beneficiary. The payout must go to the business to handle operational losses or debts.

Is Keyman insurance premium tax-deductible?

Yes, under Section 37, the company can claim the premium as a business expense. This helps in reducing the overall taxable income.

What happens if I leave the startup?

The company can stop paying the premium and let it lapse. Alternatively, some policies allow a transfer to the new employer.

Does Keyman insurance have a maturity benefit?

No. Per IRDAI guidelines, these must be pure term plans. There is no money back if the person survives the policy term.

Is the claim payout taxable for the company?

Yes. The claim amount received by the company is treated as business income and is taxed according to the corporate tax slabs.

Can a loss-making startup buy Keyman insurance?

Yes. Insurers often look at the funding raised and the founder's profile/salary if the startup hasn't turned a profit yet.

What is the maximum sum assured I can get?

It is usually tied to your salary or business profits. Most insurers cap it at 10x salary or 3-5x average net profits.

Keyman Insurance for Startups: VC Rules & Tax Benefits

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Term Insurance for Startups: Why VCs Demand Keyman Insurance for Founders

You have the term sheet. Now you need the policy. Learn why Keyman insurance is a business survival tool, not just a checkbox.

4 min read

OneAssure Team

April 05, 2026

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

The VC Term Sheet Surprise

You finally closed your seed round. The valuation looks great. Then you see a clause in the term sheet. It says the company must buy Keyman insurance for you and your co-founder. It feels like another hurdle. It is not. Investors are not being morbid. They are protecting their capital. If you are the brain behind the code or the face of the sales, your absence is a business risk. VCs want to ensure the startup does not collapse if a founder is no longer there to lead. This policy provides a cash cushion to find a replacement or pay off debts during a crisis.

How Keyman Insurance Works in India

Keyman insurance is a pure term plan. The company is the proposer. The company pays the premium. The founder is the life insured. If something happens, the claim payout goes to the company bank account. It does not go to your family. This is a common point of confusion. Think of it as a corporate asset. It is meant to keep the lights on while the board figures out the next steps. Recent IRDAI rules are very strict about this. These policies must be pure term plans. No maturity value. No survival benefits. You do not get money back if you stay healthy. It is strictly for protection.

The Section 37 Tax Benefit

Here is some good news for your burn rate. The premiums you pay for Keyman insurance are considered a business expense. You can claim this under Section 37 of the Income Tax Act. This reduces your taxable profit. It is a smart way to get high-value protection while saving on tax. However, be careful. If the company receives a claim payout, that amount is treated as business income. It is taxable. You must plan for this. Most founders use these funds to settle business loans or hire expensive C-suite talent to fill the gap. It keeps the ship steady when the captain is gone.

Calculating Your Worth

How do you put a price tag on a founder? Insurers use specific math. They usually look at your salary or the company's net profit. A common rule is 10 times your annual compensation. Or they might look at 3 to 5 times the average net profit of the last three years. For early-stage startups with no profits, insurers look at the funding amount. They want to see a logical link between the sum assured and the business value. If you ask for a ₹50 Crore cover for a pre-revenue startup with ₹2 Crore funding, the underwriter will say no. Be realistic with your numbers.

Keyman vs Employer-Employee Schemes

Do not confuse this with standard group term insurance. In an employer-employee scheme, the employee chooses the nominee. The family gets the money. In Keyman insurance, the company is the sole beneficiary. You cannot name your spouse as the nominee here. This is why you must keep your personal term insurance separate. Your personal policy protects your home loan and your kids. Your Keyman policy protects your equity and your employees. Both are necessary. One does not replace the other. Mixing them up is a recipe for legal trouble later.

The Paperwork and Board Resolution

You cannot just buy this online like a phone cover. It requires a formal Board Resolution. The board must state why you are a 'Key Person'. You will need to show your shareholding pattern. Most Indian insurers have a cap. If a founder owns more than 70% or 80% of the company, they might be extra cautious. They want to ensure the policy is for business continuity, not just a way to move money. You will need the last three years of ITR and audited financials of the company. If your startup is new, your appointment letter and the VC term sheet will be your primary documents.

Protecting the Runway

Startups are fragile. A leadership vacuum can lead to a mass exodus of talent. Or it can trigger immediate loan recalls from banks. Keyman insurance acts as a shock absorber. It tells your investors that you have a plan for the 'what ifs'. When you use a platform like OneAssure to compare different corporate term plans, you get a clearer picture of which insurers understand the startup ecosystem. Some insurers are more founder-friendly than others. Look for those who offer quick underwriting for high-growth companies. It saves you time during the busy funding month.Check your shareholding limits before applying. Ensure your board resolution is drafted correctly. Keep your documents ready. A smooth application means one less thing to worry about while you build your unicorn. It is about building a legacy that lasts, even if the pioneers are not around to see it through.