Key Person Insurance for H-1B Employees: A Practical Checklist

What Key Person Insurance Covers and Why the Visa Question Comes Up

Key person insurance is life or disability insurance that pays a business for financial losses caused by the death or disability of a key employee (Insurance Information Institute). When that employee holds an H-1B or other work visa, the employer must answer a few extra questions. This key person insurance for H-1B employee checklist walks through them from the employer’s side, one item at a time.

In the usual structure, the business owns the policy, pays the premium, and receives the death benefit. The business’s need comes from the employee’s role and the loss the business would face, not from where the employee was born. The visa adds questions about how long the employee will stay and whether a move abroad is likely. Those answers belong in your file before you apply.

This checklist covers employer-side questions only. For the product overview, read our key person insurance guide.

Checklist Item 1: Does the Business Have an Insurable Interest in This Employee?

Florida’s insurable interest statute requires that interest to exist when the contract is made (Fla. Stat. 627.404). It does not need to last after coverage starts.

Test: Would losing this employee cost the business money? Examples include lost revenue, the cost of hiring and training a replacement, or the loss of a skill or client relationship that only this person holds.

If yes: Write down the role, the business reason for coverage, and the expected cost of losing the employee. Keep that note with the application.

If no or unclear: Don’t apply yet. A coverage review can help test whether the business case holds.

Florida law gives a business entity an insurable interest in its owners, directors, officers, partners, managers, and key employees or key persons, if the key employee or person consents in writing before the insurance is purchased. A ‘key employee’ here is someone whose position or pay fits IRC 101(j)(2)(A)(ii). Nationality and immigration status are not part of it. Nationality and immigration status are not part of it.

Checklist Item 2: Has the Employee Given Written Consent?

A business may insure a key employee only after that employee gives written consent before the purchase. Florida law sets this rule for key employees (Fla. Stat. 627.404). Federal tax rules for employer-owned policies also require written consent and written notice to the employee before the policy is issued, including notice that the business will be a beneficiary.

Test: Has the employee been told in writing that the business plans to insure his or her life, and signed a consent before the application goes in?

If yes: Keep the signed consent with the application and the policy.

If no: Get the signed consent before applying. Don’t pressure the employee. The statute also bars the business from retaliating or taking adverse action against a key employee who declines to consent.

Checklist Item 3: How Does the Employee’s Visa Status Affect the Coverage Decision?

The visa matters only through the employee’s role and how long the employment is expected to last. Your decision should rest on those two facts, not on the employee’s country of origin.

Test: Does the business expect this employee to stay in the role for the period the policy would cover?

If yes: Note the expected employment period in the coverage file.

If unclear: Write the possibility into the notes. A change of employer, status, or role can shorten the period the employee stays with the company.

Update the notes when the employment plan changes. Treat the visa as one fact in the file, not as a reason to treat the employee differently.

Checklist Item 4: Would the Employee Move Abroad During the Policy Term?

A move abroad doesn’t settle the question by itself. The policy’s own terms and the insurer’s written answer decide what happens.

Test: Is there a realistic chance the employee will relocate outside the United States, for a transfer, a personal move, or the end of the work visa?

If a move is possible: Ask the insurer in writing how residence changes affect premiums, benefits, underwriting, and continuation. Get that answer before the policy is issued, and keep it in the file.

Payments can get harder during a move. Many life insurance policies include a grace period for paying a premium after its due date. The policy contract states how long that period is and whether coverage stays in force during it. Plan payments with that window in mind.

Checklist Item 5: Do the Policy Terms Fit the Business’s Needs?

Test: Do you know who owns the policy, who is the beneficiary, how premiums are paid, and what happens if one is missed?

In most key person structures, the business owns the policy, pays the premium, and is the beneficiary. The exact rights depend on the policy form and the insurer’s terms.

Term life insurance covers a limited period. Whole or permanent life insurance covers the insured’s lifetime and includes a cash-value feature (FINRA). The better fit depends on how long the business needs coverage.

Two Florida rules matter here. If the insured’s age was recorded wrong, the benefit is what the premium would have bought at the correct age (Fla. Stat. 627.456). An incontestability clause does not stop the insurer from relying on exclusions later (Fla. Stat. 627.463).

Ask the insurer in writing about premium changes with age, cancellation, and conversion. If the terms don’t fit the business’s plan, don’t sign. A coverage review can compare the policy form, its limits, and its exclusions against the stated need.

Checklist Item 6: Are You Ready for the Health Questions and Underwriting?

Underwriting decides whether, and on what terms, the policy is issued.

Test: Has the employee been told that the application asks about health, and that the insurer may request medical records or an exam before issuing coverage?

If the policy is fully underwritten: Plan for health questions and possible records from the start. Don’t describe the application as requiring no health information.

If the employee’s health history is uncertain: Tell the employee the application will ask about it. Let the insurer’s decision stand as the answer.

Florida law lets an insurer rely in good faith on the applicant’s statements about insurable interest, so keep those statements accurate (Fla. Stat. 627.404).

Checklist Item 7: What the Employer Must Keep and What the Employer Should Not Do

Keep one file with the insurable interest notes, the signed consent, the application, the policy, the beneficiary designation, the premium payment record, and every written insurer answer, dated when received.

Under IRC § 6039I, every applicable policyholder owning one or more employer-owned life insurance contracts issued after the date of the enactment of this section must file a return, and every applicable policyholder owning one or more employer-owned life insurance contracts during any year must keep the records needed to show whether the requirements of this section and section 101(j) are met. The return shows whether valid consent is held for each insured employee (26 U.S.C. 6039I). The IRS states that death benefits generally are excluded from gross income, but interest received on the proceeds is taxable (Internal Revenue Service).

Don’t describe the policy as an investment or a savings plan, and don’t promise a return. Don’t use visa status to single out the employee for coverage terms. Review the tax effects against the business’s own facts before buying.

Insurance is offered by the licensed agent, separately from the accounting practice.

Next Step: Request a Coverage Review for Your Key Employee

If the business passes the insurable interest test and the employee has consented in writing, the next step is a coverage review of the role, the policy terms, and the business’s records. NR CPAs & Business Advisors is a Miami CPA firm that helps business owners and families choose life insurance. Contact us to arrange a coverage review of your key employee’s situation.

Nischay Rawal is the responsible agent for this page. He acts as a licensed insurance agent for any policy offered. For Florida context, see key person insurance in Florida.

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