Keeping Key Person Coverage in Place When an Employee Moves Abroad

A key person policy can stay in force after a key employee moves abroad, but the move alone does not settle the question. Coverage turns on the policy’s residency terms, how premiums get paid, and the insurer’s rules for coverage outside the country. Here is what a business should check before the move date.

What Key Person Insurance Is and Who Owns It

Key person insurance is a life insurance policy a business buys on a key employee, with the business named as beneficiary. The Insurance Information Institute describes it as coverage that compensates a business for financial losses caused by the death or disability of a key employee.

The business usually owns the policy, pays the premiums and receives the death benefit. The employee is the insured, not the owner. That split matters when someone moves, because the business holds the contract rights and must keep the policy running from its side.

Key person coverage can be built as whole life insurance or term life insurance, depending on the design the business chose. Each design has different premium and cash value features, so the choice affects how a move plays out. The key person insurance pillar page covers those designs in more detail. The insurer’s policy contract and form number control the actual terms.

Short Answer: Coverage After a Move Depends on the Policy Terms

Coverage can continue after a key employee moves abroad. Florida law says the insurable interest need not exist after the inception date of coverage under the contract, and the policy terms also matter. A move does not end a policy by itself. Whether it stays in force depends on the facts: the residency wording, the premium arrangements and the insurer’s out-of-country rules.

A common mistake is to assume coverage continues because the policy was in force before the move. Some policies ask for notice or approval after the insured’s address changes. Others limit coverage by territory, travel region or activity.

Ask the insurer to confirm in writing which terms apply to the specific policy and the new work location. The sections below walk through residency wording, premiums, insurer rules and business changes in order.

Residency and Country-of-Residence Terms to Check

The residency clause says where the insured must live, work or travel, and whether a change must be reported to the insurer. Find it in the policy contract and in the application. Both show what the insurer agreed to at issue.

Health questions were answered when the policy was issued. A change in residence is a separate question. The insurer reviews it under the policy’s terms, so the business should ask how that review works before the move.

Florida’s insurable interest rule adds one point. Under Fla. Stat. § 627.404, a business may insure a key person only if that person consents in writing before the purchase. The insurable interest need not continue after coverage begins.

Keep the signed consent in the business file. Keep copies of the residency wording and any notice you send, dated and signed. Also ask the insurer which address and country details it needs on record.

Paying Premiums From Abroad

Premium payment is where many overseas moves cause problems. Premiums may come from a business account, an automatic bank draft, a card or a check. Each one needs a different setup when the bank or account holder sits outside the United States.

Florida law requires every policy to give a grace period of at least 30 days after the first premium, under Fla. Stat. § 627.453. The policy stays in force during that grace period. If the grace period ends unpaid, the policy can lapse, meaning coverage ends.

Lapse notice rules add another layer. Under Fla. Stat. § 627.4555, except as provided in that section, a life insurance contract issued or issued for delivery in this state on or after October 1, 1997, covering a natural person 64 years of age or older and in force for at least 1 year may not be lapsed for nonpayment of premium unless, after expiration of the grace period and at least 21 days before the effective date of any such lapse, the insurer has mailed a notification of the impending lapse in coverage to the policyowner and to a specified secondary addressee designated in writing by name and address by the policyowner. That rule does not apply to premiums payable monthly or more often that are regularly collected by a licensed agent or are paid by credit card or any preauthorized check processing or automatic debit service of a financial institution.

Currency and transfer timing are cash flow issues. Calendar each due date, confirm the payment instructions in writing, and test the transfer route before the employee leaves.

Insurer Rules on Out-of-Country Coverage

Insurers set their own rules for coverage of insureds who live or travel abroad. Those rules sit in the policy wording and can cover territory, travel regions or certain activities. Claims made from outside the country may also have their own documentation steps.

Florida law limits one kind of defense. Under Fla. Stat. § 627.463, an incontestability clause only bars a contest of the policy’s validity. It does not stop an insurer from relying on exclusions or restrictions in the policy.

Put these questions to the insurer in writing. Does coverage continue after the move? What documents does a claim from abroad require? Does any exclusion or limit apply once the insured lives overseas?

Nischay Rawal acts as a licensed insurance agent when these policies are discussed. Under Fla. Stat. § 626.9531, an agent must clearly tell prospective insureds that they are acting as an insurance agent, with the insurers identified. Insurance is offered separately from the firm’s accounting practice.

Relocation Changes That Can Affect the Policy

A move often brings other changes. The employee’s role, employment status, equity stake, pay or contract may all shift. Each change can raise questions about who owns the policy, who receives the benefit, and whether the business still needs the coverage.

Ownership and beneficiary wording deserve a fresh look. Under 26 U.S.C. § 2042, insurance on a decedent’s life counts toward the gross estate to the extent receivable by the executor, and to the extent receivable by other beneficiaries when the decedent held incidents of ownership at death. Ownership wording matters for estate planning as well as business use.

A buy-sell agreement or estate plan can be affected by the move too. Review those documents with the policy at the same time. Put any change in writing, with the date, the old and new details, and the insurer’s written reply.

Cash Flow, Business Revenue and Tax Questions

Key person coverage protects business revenue and cash flow after a key person’s death or disability. The death benefit can help a business cover lost revenue while it recruits or reorganizes. The policy’s terms set when a benefit is payable.

A lapse removes that cushion. Weigh the cost of keeping the policy against the business impact of losing it, and make that decision before the move.

From a CPA’s view, the tax answer turns on the policy structure and the business’s facts. That section also has exceptions, so the answer needs review.

Under 26 U.S.C. § 101(a), amounts paid by reason of death are generally not gross income. The Internal Revenue Service notes that interest paid on proceeds left with the insurer is taxable.

Questions to Bring to a Coverage Review

The first meeting with our team is a coverage review. In it, the policy terms and the relocation facts are reviewed together. Bring these items so the review starts with the facts:

• The insurer’s name and the policy form number
• The residency clause and any duty to report a change
• The premium method, due dates and grace period
• Out-of-country, territory and exclusion wording
• The owner, the beneficiary and the insured’s signed consent
• Any buy-sell or estate planning documents tied to the policy

The National Association of Insurance Commissioners Life Insurance Buyer’s Guide lists questions to ask before buying. The Florida Department of Financial Services guide explains beneficiaries, policy loans and replacement.

Talk Through a Planned Move With Your Coverage

Perhaps a key employee is about to start work overseas, and you’re unsure whether the policy keeps running. Or an owner has just learned that a key person will live abroad for a long stretch. Those are the moments to settle residency, premiums and insurer terms before the move date.

Contact NR CPAs & Business Advisors to set up a coverage review of your policy and your relocation plan.