Key Person Insurance for a Green Card Owner Who Runs a Business

Key person insurance is life insurance that a business owns on someone it depends on. For a green card owner, the main questions are who owns the policy, who is insured, and how U.S. tax rules apply. This guide covers each point so you can prepare for a coverage review.

What Key Person Insurance Is and Who It Is For

Key person insurance is a life insurance policy a business owns on a person whose work, skills or relationships the company relies on. The Insurance Information Institute describes key person coverage as protection against financial losses from a key employee’s death or disability. This page covers the life insurance side only.

Most policies have three roles:

• Owner: usually the business.
• Insured: the key person, such as an owner-operator, founder, sales leader or technical lead.
• Beneficiary: usually the business, which receives the death benefit.

These roles matter. They decide who pays premiums, who receives the money, and how the tax rules apply.

This guide is for a green card holder who owns or co-owns a U.S. business. It also fits a spouse or family member researching on the owner’s behalf after a loss, a partner change or a lender’s request.

What a Green Card Changes, and What It Does Not

A green card generally makes you a lawful permanent resident, not a U.S. citizen. Your facts, not the card alone, drive the tax analysis.

Insurers may ask about residency, citizenship and immigration documents during underwriting. Bring your status papers, and ask the insurer how it uses them.

NRI life insurance is a separate product for people who are not U.S. residents. Confirm which category fits your facts before you compare options.

Immigration status does not change the core business question. The company still needs to know what losing this person would cost it.

What the Policy Covers: Term, Whole Life and Key Terms

Key person coverage usually comes as term or whole life. Term covers a set period with a level death benefit and no cash value. Whole life covers the insured’s life and builds cash value. Dividends, where a policy pays them, are not guaranteed. Any illustration shows guaranteed and non-guaranteed values separately.

The death benefit is the amount paid to the business if the insured dies while the policy is in force. Companies often use it for lost revenue, recruiting, debt payments or a steadier transition.

Whole life funding needs a close look. Under section 7702 of federal tax law, a contract is a life insurance contract only if it meets the cash value accumulation test of subsection (b) or the guideline premium requirements of subsection (c), and the 7-pay test and modified endowment contract rules are in section 7702A of the same tax law.

Before issue, the premium payment period and any change in face amount or premium should be explained in writing. IRC § 7702 reads: “The payment of a premium which would result in the sum of the premiums paid exceeding the guideline premium limitation shall be disregarded for purposes of subsection (a)(2) if the amount of such premium does not exceed the amount necessary to prevent the termination of the contract on or before the end of the contract year (but only if the contract will have no cash surrender value at the end of such extension period).” Exclusions and limitations should be checked against the policy form number and the insurer named in the proposal. Florida law requires life policies to become incontestable once they have been in force during the insured’s lifetime for two years from the date of issue, except for nonpayment of premiums and, at the insurer’s option, disability and accidental-death provisions, per Fla. Stat. § 627.455.

Ownership, Beneficiary and Tax Treatment

The business usually owns the policy and receives the death benefit. Premiums are generally not deductible when the business is directly or indirectly the beneficiary, per IRC § 264. That exclusion has exceptions, including rules for transfers of a policy for value.

Employer-owned policies can carry federal filing and consent duties under IRC § 6039I. Lenders sometimes ask for key person coverage, so check the loan documents for that condition. Our CPA review looks at how the policy fits cash flow, any buy-sell or estate plan, and the company’s reporting.

How the Process Works, Step by Step, and What Drives Cost

The process starts with a coverage review and moves through five steps.

1. Coverage review. Our team learns about the business, the key person’s role and why the company wants coverage.
2. Documents. You gather financial statements, ownership records, residency or immigration papers and any lender requirements.
3. Option comparison. Term and whole life are explained in plain words. Any specific policy is named with its insurer and form number.
4. Application and underwriting. A fully underwritten policy requires health questions, and issue may depend on insurability. Timing depends on the insurer and the underwriting file.
5. Delivery and records. We confirm the owner, beneficiary and written consent records are on file.

Cost depends on the insured’s age and health, the death benefit, the policy type and the payment period. This page does not quote premiums. Any premium figure should come from a written proposal for a specific insurer and policy.

Why Work With NR CPAs & Business Advisors

NR CPAs & Business Advisors is a Miami CPA firm. It helps families, professionals and business owners across the United States choose and buy life insurance, including Indian-American households and business owners. Our team reviews tax, cash flow and business structure alongside each coverage decision, so the policy is not judged in isolation.

Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice. The firm does not offer rebates or other inducements to buy. Where a commission is paid on an insurance policy, it is disclosed in writing before the engagement, in an engagement letter the client signs that gives the complete details of the compensation, and no commission is taken on a product recommended to a client for whom the firm performs an audit, review, examination of prospective financial information, or a compilation a third party will use.

Questions Green Card Owners Ask About Key Person Insurance