Key Person Insurance for a Foreign National Owner in Florida

Key person insurance is a life insurance policy a company buys on someone whose death would hurt the business. When that person is a foreign national owner or officer, the company needs the same planning plus several extra checks. This guide covers the policy roles, Florida consent rules, underwriting paperwork, and the tax questions a CPA should review.

NR CPAs & Business Advisors is a Miami CPA firm that serves Florida businesses in Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa, and Jacksonville. Insurance is offered by our licensed agent, Nischay Rawal, separately from the accounting practice.

What Key Person Insurance Is and Who It Fits

Key person insurance is life insurance the business owns on a key person, and the business receives the payout. The Insurance Information Institute describes it as a way to compensate a business for financial losses caused by the death or disability of a key employee.

Typical key persons include:

• Owners and co-founders
• Officers, such as a president or chief financial officer
• Top producers who bring in much of the revenue
• Technical leaders whose skills the company can’t easily replace

A foreign national owner or officer raises the same questions. You also need to confirm consent, document residence and identity, and plan for where the beneficiary lives. Florida law requires an agent to be licensed and appointed before acting as one, under Fla. Stat. § 626.112.

How the Policy Roles and Coverage Work

A key person policy has three roles: owner, insured, and beneficiary. In most cases the company owns the policy, the key person is the insured, and the company is the beneficiary.

• Policy owner: the party that pays the premiums and controls the policy.
• Insured: the key person whose life is covered.
• Beneficiary: the party that receives the death benefit.

Florida law requires an insurable interest. That applies when the key person gives written consent before the insurance is bought. The statute also bars the business from retaliating against a key person who refuses consent. Keep the signed consent in the company’s records.

The death benefit should match a written loss estimate. Companies often plan for replacement hiring, lost revenue during a transition, debt payoff, and steady operations. Write each cost down. The total becomes the amount you discuss in the coverage review, not a guess.

Policy type is a separate choice. The NAIC Life Insurance Buyer’s Guide explains term and permanent coverage, how much to buy, and questions to ask before buying. The coverage review covers whether term or whole life coverage fits the company’s need.

How Foreign National Status Affects Underwriting and Paperwork

Foreign national status does not block a key person policy, but it changes the paperwork. Underwriters usually ask for:

• Country of residence and current address
• Visa or immigration status
• Travel history and time spent outside the U.S.
• Identity documents that match the application and company records

Fully underwritten policies require health questions. Issue may depend on insurability. Underwriting rules vary by carrier and by each case, so the timeline can differ from one file to another.

Location also affects payment. If the insured or the beneficiary lives outside the country, the premium payment method and beneficiary paperwork need review before issue. Mismatched names or dates slow a file down, so check every document against the application.

Tax and Cash Flow Questions a CPA Should Review

Premiums come out of company cash, and the tax result depends on how the policy is owned. Under 26 U.S.C. § 264, no deduction is allowed for premiums on a life insurance policy when the company is directly or indirectly a beneficiary, so the company’s CPA should review this before the first premium.

That general rule has exceptions, including the transfer-for-value rule. Any change in ownership or beneficiary needs review first.

Federal law also defines a “reportable policy sale.” It is the acquisition of an interest in a life policy by someone with no substantial family, business, or financial relationship with the insured, apart from that interest.

Two more rules can apply. If the decedent held ownership rights in the policy, proceeds can count in the gross estate under 26 U.S.C. § 2042.

Foreign-owner status can add reporting questions for the company and its owners. Our CPA review of those questions is separate from the insurance sale. Tax treatment depends on the facts of each company and policy.

How the Coverage Review and Process Works

A coverage review is the first meeting, and it gathers the facts before any policy is chosen. The usual steps are:

1. Coverage review. Gather ownership records, key person roles, and the company’s written loss estimate.
2. Insurable interest check. Confirm written consent and decide which entity will own and pay for the policy.
3. Application. Complete the health questions and foreign national documentation. Health questions are required, and issue may depend on insurability.
4. Underwriting. The carrier reviews the file. The length varies by carrier and by case.
5. Policy issue. Set up premium payments and review the policy each year, or whenever ownership or roles change.

Each step depends on the one before it. Ask for the policy’s terms, limitations, and exclusions in writing before you sign. Skipping the written consent step is a mistake that Florida law addresses directly.

Coordinating Key Person Coverage with Buy-Sell Agreements and Continuity Planning

Key person coverage protects the business’s operations. Buy-sell agreement insurance funds the purchase of a departing owner’s share. The two policies do different jobs, so don’t mix them up.

If a foreign national co-owner is part of a buy-sell agreement, the buyout price should match the policy’s face amount. The beneficiary named on the policy should match the agreement too. A mismatch can leave the surviving owners short of cash when they need it most.

A written continuity plan helps the company use the death benefit for its stated purposes. The plan should name who runs daily operations, who signs bank documents, and how the business will communicate with staff and clients. NR CPAs & Business Advisors also offers buy-sell agreement insurance and NRI life insurance, and we can review how they fit with key person coverage.

Frequently Asked Questions