Key Person Insurance When Your Employee Works From India

Key person insurance can stay in force when a key employee works from India, but the move can change how the insurer underwrites, issues and services the policy. Whether your policy still fits depends on the insurer’s rules, the policy form and the facts of the employee’s role.

This guide explains what changes, what to document and what to review. It is educational. It does not promise that any policy will issue or pay.

Short answer: location does not decide the question alone

Key person life insurance is coverage a business owns on the life of an employee or owner whose work the business relies on. The Insurance Information Institute describes it as a way to offset the business’s financial losses when a key employee dies or becomes disabled, according to its guide to life insurance for key employees.

Moving the employee abroad does not end the policy on its own. It can change underwriting, whether a new policy will issue, and how the carrier handles servicing. Don’t assume the policy is unaffected just because the employee still works for the company.

How key person life insurance works in plain terms

The business usually owns the policy, pays the premiums and names itself as beneficiary. The death benefit goes to the business, not to the employee’s family.

Florida law ties this structure to insurable interest. A person may buy coverage on another person’s life only if the benefit is payable to the insured or to someone with an insurable interest when the contract is made. The insurable interest need not continue after coverage starts.

The business must also get written consent from the key employee before buying the policy. The business may not retaliate against a key employee who refuses. Under the same statute, for an individual insurance contract (other than a prepaid funeral contract, group life insurance, or group or blanket accident, health, or disability insurance), the insured’s written consent must come on or before the time the contract is made.

The policy itself may be whole life insurance or term life insurance. Under Fla. Stat. § 627.404(5), a contract of insurance upon a person, other than a policy of prepaid funeral contract, group life insurance, or group or blanket accident, health, or disability insurance, may not be carried out unless, on or before the time of entering into the contract, the person insured, having legal capacity to contract, applies for or consents in writing to the contract and its terms, except that a person with an insurable interest in the life of a minor younger than 15 years of age, or a person upon whom such a minor is dependent for support and maintenance, may obtain a policy of insurance on the minor.

Why the employee’s work location matters to the insurer

Insurers ask about residence, travel, occupation and health history during underwriting. A move to India is a change the carrier will want to know about. Answers on the application must be accurate and current.

Health questions are part of underwriting, and issue of coverage may depend on insurability. A relocation does not change that rule, but a change in the employee’s location can change what the carrier needs to review.

Carrier rules for insureds living outside the United States vary. Ask the carrier in writing what it will accept for this employee before assuming the existing policy will continue as written.

Tax rules also look at the insured’s status.

Facts to document if the employee now works from India

Good records make the next review faster and more accurate. Start with the basics: the employee’s current country of residence, the expected length of stay, and the date the move began.

Next, document the business reason for the coverage. Record the employee’s responsibilities, client relationships, projects and the revenue or costs tied to that role. If the reporting line or job duties changed, write that down with a date.

Keep the written consent on file. Note any change in the employee’s pay, ownership stake or role in a buy-sell agreement, since those changes can affect the coverage amount and the beneficiary.

The statute also requires the policyholder to keep the records needed to determine whether the requirements of this section and the related income-exclusion rules are met (IRC § 6039I).

What to review before changing or keeping the policy

Start with the policy facts: the face amount, the premium payment period, any age-based change in premium, and whether the policy is renewable and cancellable. These terms do not change because the employee moved, but they set the cost and the limits you need to plan around.

If the business is considering a new policy or a replacement, Florida’s rules apply. Under Florida law, churning by an insurer or an agent is an unfair method of competition and an unfair or deceptive act or practice. A replacement recommendation must not be misleading.

If cash value is involved, separate the guaranteed values from the non-guaranteed values. Review the effect of any surrender or policy loan before acting. Florida law requires an agent who recommends surrender of an annuity or life insurance policy with a cash value, and does not recommend that the proceeds be used to fund or purchase another annuity or life insurance policy, to provide written information on surrender charges, lost guarantees, possible tax consequences and any forfeited death benefit, under Fla. Stat. § 627.4553.

Loans need attention too. Under Fla. Stat. § 627.458, if loan debt reaches the loan value, the policy may end, but only after at least 30 days’ notice is mailed.

On tax, the IRS explains when life insurance proceeds paid because of the insured’s death are taxable, as set out in its guidance on taxable life insurance proceeds; for an employer-owned life insurance contract, IRC § 101(j) generally limits the amount excluded from gross income to the premiums and other amounts the policyholder paid, unless listed exceptions apply. Federal income tax and estate questions are separate, so bring both to the review.

Related steps for Florida businesses

Florida business owners can review how a relocated employee affects each part of the plan. That includes key person coverage, buy-sell agreement funding, whole life cash value and, where relevant, coverage for an NRI or Indian-American owner.

Insurance is offered by the licensed agent, Nischay Rawal, separately from the accounting practice of NR CPAs & Business Advisors. The tax review and the insurance review are separate services, and each one is described in its own terms.

Talk through your employee’s situation with our team

A key employee who now works from India raises real questions about the policy, the consent records and the tax reporting. Our team can review those facts with you before the business changes or keeps anything. Reach out at nrcpas.com/contact.

Fees for the coverage review are disclosed in writing before any engagement.