Key Person Insurance If an Owner Moves to India

Key Person Insurance If Owner Moves to India

Key person insurance usually stays in force when the owner moves to India, because the company owns the policy, not the owner. A move alone rarely ends a company-owned policy. The contract terms and on-time premium payments decide what happens next. This guide from NR CPAs & Business Advisors, a Miami CPA firm, explains what stays the same, what can change, and what to review before you decide.

The Short Answer: The Company Owns the Policy, Not the Owner’s Address

A company-owned key person policy usually continues after the owner moves, because the insurer’s contract is with the company. Florida law says the insurable interest “need not exist after the inception date of coverage” under the contract, according to the Florida insurable interest statute. That rule helps, but it is not a promise that coverage will continue. Your policy form, your premium payments, and the insurer’s notice process still matter. The answer depends on the facts of your policy, so the rest of this page explains what to check.

Why Companies Carry Key Person Insurance and Why Continuity Matters

Key person insurance is a life policy a company owns on an owner or employee whose work the business depends on. The company pays the premiums and receives the death benefit. The Insurance Information Institute explains that this coverage compensates a business for financial losses caused by a key employee’s death or disability.

Companies often plan to use the benefit for lost revenue, recruiting costs, or debt. Some use it to fund a buy-sell agreement. The right use depends on how the company planned for the loss.

That planning is why continuity matters. A plan built around a policy stops working if the policy lapses or changes without anyone noticing. An owner who moves abroad for work is often still the person the company relies on. So the policy still has to fit the business. Florida law also defines a key person by reference to a federal tax test based on position or compensation. The company should confirm that the insured still fits that role.

What Usually Stays the Same When the Owner Relocates

The owner’s move usually does not change the policy’s owner or beneficiary. The company stays the owner and beneficiary unless it makes a formal change with the insurer. The premium schedule, face amount, and renewal terms also continue as written. The company changes them only through the insurer’s process.

Premiums still have to reach the insurer on time. Florida law requires every insurance contract to give at least 30 days to pay a premium after the first. The policy stays in force during that grace period. The insurer may charge interest on the days of grace, at not more than 8 percent a year, under the Florida grace period statute. A grace period is a safety net, not a payment plan. A company that pays from abroad should set payment dates well before any deadline.

Keep one file with the policy number, insurer name, owner, beneficiary designation, premium amount, and payment schedule. The finance team should be able to reach that file while the owner is overseas. Good records make it much easier to answer an insurer’s question quickly.

What Can Change: Insurer Notices, Policy Terms and Underwriting

Changes usually come from the paperwork and the insurer’s rules, not from the move itself. Ask the insurer, in writing, what it requires when an insured changes residence. Read the policy form for any terms that describe coverage outside the country where the policy was issued. Some forms say more about this than others, so check yours.

Insurable interest is the next point. Under Florida law, a business must have an insurable interest when it buys the policy. The company must also get written consent from the key person before the purchase. That is why the consent paperwork from the start matters so much.

A new policy after the move is a different matter. If the company wants new coverage on the owner, the insurer will underwrite the application using the owner’s residence and health information at that time. Underwriting decides whether and on what terms a policy is issued. If the owner wants a personal policy from abroad, that is an NRI life insurance question and needs its own review.

Tax and Cash Flow Points a CPA Reviews Before Deciding

Premiums are generally not deductible when the company is the beneficiary. The federal rule on life insurance premiums says no deduction is allowed for premiums on a life policy if the taxpayer is directly or indirectly a beneficiary. For a company-owned key person policy, that usually means the premiums are not a business deduction.

Death proceeds are generally excluded from gross income under section 101(a), subject to that section’s rules, including its transfer-for-value rule. Section 101(a) excludes from gross income amounts received under a life insurance contract that are paid by reason of the insured’s death, but under subsection (c), interest paid on amounts held under an agreement to pay interest is included in gross income.

Employer-owned contracts also carry a filing duty. Under IRC section 6039I, an owner of employer-owned life insurance contracts issued after the date of enactment of this section must file a return each year. The owner must also keep the records needed to show compliance.

Cash flow needs its own tracking. If premiums come from a foreign account or in another currency, track the cost and timing of each payment. Exchange rates and bank charges change the real cost. The owner’s own tax residence abroad is a separate question for the owner’s tax advisor. Do not assume it matches the company’s treatment of the policy.

Term or Whole Life: How the Policy Type Affects a Move

Term life insurance pays a death benefit only if the insured dies during the term. Check the term length, renewal terms, and any conversion option against your move timeline. The NAIC Life Insurance Buyer’s Guide explains the difference between term and permanent life insurance. Florida’s policy loan rules do not apply to term policies, according to the Florida policy loan statute.

Whole life builds cash value. Once a policy has a cash surrender value and no premium is in default, Florida law requires the policy to provide that the insurer will advance a policy loan, on proper assignment or pledge of the policy as security. Fla. Stat. § 627.458 reads: “The loan value of the policy shall be at least equal to the cash surrender value at the end of the then-current policy year, except that the insurer may deduct, either from such loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining such cash surrender value, including any interest then accrued but not due, any unpaid balance of the premium for the current policy year, and interest on the loan to the end of the current policy year.” The insurer may defer granting a loan, other than for premium payment, for 6 months after the application. Read the loan terms before a move, not after.

Watch how the policy is funded. Under IRC section 7702A, a contract fails the 7-pay test when the premiums paid in its first seven contract years run ahead of a set limit. The tax code treats that type of policy differently. Review the funding schedule before any loan or withdrawal after a move.

If Coverage Is Questioned After the Move

A request for updated information is not a decision on coverage. An insurer may ask for current residence or health details after a move. Answer those requests fully and keep copies of what you sent. A prompt, complete reply helps keep the file moving.

Be careful with any suggestion to surrender a policy. When an agent recommends surrendering a life policy with cash value and does not recommend using the proceeds to buy another annuity or life insurance policy, Florida law requires written information first. The Florida surrender statute lists items such as estimated surrender charges, possible tax consequences, and any forfeited death benefit. Ask for that information in writing before deciding.

If an insurer declines a new application, ask for its reasons in writing. Then review the company’s options with your advisors before taking any step. Do not let a declined application push the company into a rushed decision on the existing policy.

Document the need for coverage now. Write down what the company would lose if the key person died, with dates and the assumptions used. Keep that figure in the policy file so the reason for coverage is on record.

Bring Your Move Details to a Coverage Review

If an owner has taken work in India, the company may hold a policy no one planned to revisit. Someone in the family or on the finance team may be trying to confirm that nothing lapses or gets mishandled. That is a hard position to be in, and it is a good time to gather the facts in one place.

Have these details ready: the move date, the policy form and insurer, the premium schedule, the owner and beneficiary designations, and whether the owner’s role in the company is changing.

Frequently asked questions