Protect Your Business When a Key Person Moves Abroad

When a Key Person Moves Abroad, What Happens to the Coverage?

A move abroad does not automatically end key person insurance. The policy’s written terms and the insurer’s own rules decide what happens next.

If you’re searching for key person insurance when key person moves abroad, you may be facing a move you did not plan. Your key employee or owner may be heading to India or another country, and the business now needs answers about its policy.

The questions usually come down to a few points. Who owns the policy? Who pays the premiums? Will the coverage stay in force? Does the move change the tax picture?

Those answers depend on the facts: the policy form, its issue date, where the key person lives, and the insurer’s underwriting. Knowing the questions before you call your insurer helps you ask the right ones. Each section below takes up one of these points in plain words.

For general background, the NAIC Life Insurance Buyer’s Guide covers the questions to ask before buying life insurance.

Key Person Insurance Basics: Who Owns, Pays, and Receives the Benefit

Key person insurance is life insurance that a business owns on an owner or employee whose loss would hurt the company, if the insured gives written consent before the insurance is purchased.

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.

Usually, the business owns the policy, pays the premiums, and is the beneficiary. The insured person is the one whose life is covered.

Florida law also sets rules for when a business may insure someone’s life. Under Fla. Stat. § 627.404, a business has an insurable interest in a key employee or key person. That interest exists if the person gives written consent before the policy is bought. Fla. Stat. § 627.404 reads: “(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 such contract, the person insured, having legal capacity to contract, applies for or consents in writing to the contract and its terms, except that any person having an insurable interest in the life of a minor younger than 15 years of age or any person upon whom a minor younger than 15 years of age is dependent for support and maintenance may obtain a policy of insurance on the minor.”

A move abroad changes the practical side of these roles. It does not, by itself, change who owns the policy or who is named as beneficiary. Those changes go through the insurer.

For the full overview, read key person insurance when the key person leaves.

Will the Policy Stay in Force After the Move?

A policy remains in force under its terms while premiums are paid when due, until it ends as the contract provides (a term policy, for example, ends when its term expires). Florida law (Fla. Stat. § 627.453) requires a grace period of at least 30 days for any premium after the first, and the policy continues in force during that grace period. After a move, the practical question is how those payments get billed and made from another country.

Before the move, ask the insurer which payment methods it accepts. Ask what currency it bills in and how transfers from abroad are handled. Get the answers in writing.

Florida law also gives time to pay. Under Fla. Stat. § 627.453, every insurance contract must give a grace period of not less than 30 days to pay any premium after the first. The insurer may charge interest on the late payment, at no more than 8 percent per year. The policy continues in force during that grace period.

In plain words, a grace period is a short window after a missed due date. If a claim happens during that window, before the overdue premium is paid, the premium and its interest can be deducted from the settlement.

Treat the grace period as a backstop, not a plan. Confirm the billing route before the first overseas payment is due.

Insurability, Residence, and NRI Life Insurance Options

Moving abroad can change which insurers will cover the key person. Each insurer sets its own rules on residence. Whether it will issue or keep a policy for someone living overseas depends on its underwriting.

Before the move, ask the insurer in writing whether it will keep the current policy in force for someone living in the destination country.

A new application still asks health questions. Issue may depend on insurability. A policy issued while the key person lived in the United States may be treated differently from a new policy issued after the move. Ask the insurer how it handles each case.

NRI life insurance is coverage for non-resident Indians, a term that refers to Indian citizens who live outside India. Availability and issue depend on each insurer’s residence and underwriting rules. It is one of the practice areas at NR CPAs & Business Advisors, so it can be part of your review of the policy and the move.

Residence also affects the tax questions covered below. Review the insurance and tax points together, not one at a time.

Consent, Ownership, and Beneficiary Questions After a Relocation

Written consent is the key paper in a key person policy. Under Fla. Stat. § 627.404, the key person’s written consent supports the business’s insurable interest. That consent must come before the policy is bought. The statute also bars a business from retaliating against a key employee who refuses to consent.

Keep the signed consent in the policy file, along with the application. If the paperwork and the file disagree, fix that before a claim is ever made.

If the owner or key person relocates, review any change to ownership, beneficiary, or the insured’s role with the insurer first. Do not assume a change is complete because you sent a letter. The Florida Department of Financial Services life insurance guide covers beneficiaries and policy changes for consumers.

If the relocating person is also a shareholder, the move can touch a buy-sell agreement. A buy-sell agreement sets how an owner’s share is bought out when an owner leaves or dies. Life insurance is often used to help fund that buyout.

Ownership also matters for estate tax. Under 26 U.S.C. § 2042, insurance on a person’s own life can be part of that person’s gross estate. This applies if the proceeds are receivable by the executor as insurance on the person’s life, or if the person held certain ownership rights over the policy at death, exercisable alone or together with another person.

Tax and Reporting After the Move

No deduction is allowed for premiums on a life insurance policy if the taxpayer is directly or indirectly a beneficiary under it. Because the business is usually the beneficiary of key person coverage, premium deductibility is a point to review with our firm, not assume.

Employer-owned policies also carry reporting duties. Under 26 U.S.C. § 6039I, an applicable policyholder that owns one or more employer-owned life insurance contracts issued after the date of the enactment of this section must file a yearly return. That return covers the number of employees, the number insured, the total insurance in force, the name, address, and taxpayer identification number of the applicable policyholder and the type of business in which the policyholder is engaged, and whether valid consent was obtained for each insured employee. The statute also requires the policyholder to keep the records needed to meet those rules.

A change in residence can raise questions for both the business and the insured. For a nonresident who is not a U.S. citizen, 26 U.S.C. § 2105(a) says insurance proceeds on that person’s life are not treated as property within the United States for estate tax purposes. Citizenship and residence decide which rules apply, so review them with the full facts.

NR CPAs & Business Advisors is a CPA firm.

Talk Through Your Situation in a Coverage Review

A coverage review is the first meeting where we look at your policy and your move.

If a key employee or owner has told you they are moving abroad, you may be asking whether the company is still protected. Those questions are easier to answer before the move date than after it.

If a key person is moving abroad and you’re unsure where your policy stands, reach out for a coverage review. Contact NR CPAs & Business Advisors to talk through the move with Nischay Rawal, acting as a licensed insurance agent.