Claim Scenarios — Death, Disability & Business Continuity

Key man insurance claim scenarios encompass the various circumstances under which a company or firm can file a claim against a key man insurance policy. Unlike personal life insurance where the claim is typically triggered only by the death of the insured, key man insurance claims can arise from multiple events depending on the policy structure and riders attached. The primary claim trigger remains the death of the key person, but modern key man policies in India also cover critical illness, total permanent disability, and in some cases, terminal illness diagnosis. The claim is filed by the company (the policyholder and beneficiary), not by the family of the key person, and the proceeds are used for business continuity purposes such as hiring replacements, managing revenue shortfalls, repaying business debts, or stabilising operations during the transition period. Business continuity planning through key man insurance requires the company to have a pre-defined strategy for deploying the claim proceeds. The claim amount should be structured to cover the estimated financial impact of the key person's absence over a realistic transition period — typically 12 to 36 months. This includes the cost of recruiting and training a replacement, revenue loss during the transition, potential client attrition, the cost of interim management, and any contractual penalties the company might face due to the key person's unavailability. In India, where many companies — particularly in the SME segment — are heavily dependent on one or two individuals, the claim scenarios for key man insurance are directly tied to the survival of the business itself.

IRDAI (Protection of Policyholders' Interests) Regulations, 2017 — Regulation 8: The insurer shall settle a death claim within 30 days of receipt of all required documents. If the claim requires investigation, the insurer must complete the investigation within 90 days from the date of receipt of the claim intimation. For claims under critical illness riders, the policyholder must survive for a minimum of 28 days (the survival period) after the diagnosis for the claim to be payable. The disability claim requires certification from a qualified medical practitioner that the disability is total and permanent in nature. Under key man insurance policies, the claim is payable to the policyholder entity (the company or firm), and the insurer must verify that the policy was in force at the time of the insured event and that all premiums were duly paid.

National Insurance Company Ltd. vs. Hindustan Safety Glass Works Ltd. (Supreme Court of India, Civil Appeal No. 4475/2017) — Although this case involved a group keyman policy under a general insurance framework, the Supreme Court's observations are relevant to key man life insurance claims. The Court held that when a company takes an insurance policy to protect its commercial interests against the loss of a key employee, the policy must be interpreted in a manner that gives effect to its commercial purpose. Restrictive interpretations that defeat the purpose of business protection insurance are to be avoided. The Court further observed that insurers cannot use technical or procedural deficiencies to deny a claim when the underlying insured event has clearly occurred and the policy was in force at the time of the event.

1. Key man insurance claims can be triggered by death, critical illness, or total permanent disability of the key person, depending on the policy structure and riders. 2. The company (not the key person's family) is the rightful claimant and beneficiary of key man insurance proceeds. 3. IRDAI mandates settlement of death claims within 30 days (without investigation) or 90 days (with investigation). 4. Critical illness claims require a survival period of 28 days — the key person must survive for this period after diagnosis for the claim to be valid. 5. Business continuity planning is essential — companies should have a pre-defined plan for deploying claim proceeds. 6. Common deployment areas include hiring replacements, client retention, revenue stabilisation, employee retention bonuses, and debt repayment. 7. Claim rejections often occur when the family files the claim instead of the company, or when the illness does not meet the specific policy definitions. 8. Companies should maintain separate personal life insurance for the key person's family protection — key man insurance is solely for business protection. 9. Proper documentation at every stage — from policy purchase to claim filing — is critical for smooth claim settlement. 10. POSP advisors should proactively guide corporate clients on claim procedures during the crisis period.