Key Person Insurance for L-1 Executives

Key person insurance for an L-1 executive is a life insurance policy that a US company owns on that executive. If the executive dies, the policy usually pays the company, not the family. The company then decides how to use the money to cover the loss.

This page explains how that works when the key person is a transferee running a US subsidiary. It covers ownership, the beneficiary, underwriting, and the tax points to review with a CPA.

What key person insurance is and who it fits

Key person insurance is life insurance a business buys on someone whose death would hurt the business financially. The Insurance Information Institute explains that this coverage helps compensate a business for financial losses caused by an employee’s death or disability.

Typical key persons include the top leader of a US subsidiary and a senior manager with critical customer relationships or specialized know-how. When a foreign parent company sends an executive to run the US operation, that person often fits this description. The parent or the subsidiary may want coverage to protect operations if that person is lost.

Nischay Rawal is the responsible licensed insurance agent on this page. Insurance is offered by the licensed agent, separately from the firm’s accounting practice.

What the policy covers and how the company is set up

Every key person policy has three roles. The insured is the executive whose life is covered. The owner is the party that controls the policy. The beneficiary is the party that receives the death benefit. In most key person cases, the company is both the owner and the beneficiary.

Confirm these items before you apply:

• The death benefit amount
• The premium payment period and who pays the premiums
• Whether the US entity pays the premiums
• The policy form number and the insurer’s name
• The limitations and exclusions written in the policy

Florida law sets a consent rule for this coverage. The business may not retaliate against a key employee who refuses to consent. Get that written consent in place before the application goes in.

What changes when the key person is an L-1 transferee

The L-1 assignment is an immigration matter. The company and its immigration counsel handle that side. This page covers only the insurance side.

Insurers often ask questions a foreign national may not expect. Expect questions about residency, citizenship, country of residence, and travel plans. Answer them with the facts in hand, and ask the agent what the insurer needs before you assume coverage is in place.

Underwriting depends on the insurer’s own rules. The company should not assume coverage until the insurer accepts the application and issues the policy. Ask about this early, because it shapes the timeline.

Plan for change. If the assignment ends or the executive returns abroad, ownership, premium payments, and the need for coverage may all shift. Review those scenarios against the policy terms before you buy, not after.

Term or whole life: choosing the policy type

Term life insurance covers the insured for a set period. Whole life insurance is permanent coverage that builds cash value over time. Each fits a different business plan.

For whole life, look at guaranteed and non-guaranteed values separately. Dividends are not guaranteed. Ask the agent to show both sets of numbers side by side, with every limitation attached.

Funding speed matters too. Under 26 U.S.C. § 7702A, a policy fails the 7-pay test if the accumulated premiums paid at any time during its first 7 contract years exceed the net level premiums needed for paid-up benefits after 7 level annual premiums. A policy that fails that test is called a modified endowment contract. Ask how the premium plan affects that test before you commit.

Choose based on the length of the assignment, the business’s time horizon, and the cash flow the company can carry each year. Estate planning life insurance and NRI life insurance are related options. They fit some families and business owners and not others, so no single product suits every business.

How the process works, step by step

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

1. Coverage review. You meet with the agent to discuss the business, the executive’s role, and the goal for the coverage.
2. Information gathering. The agent collects the executive’s age, occupation, and residency, plus the company’s financial details the application needs.
3. Application and health questions. Health questions are required. Issue may depend on insurability.
4. Underwriting and policy issue. The insurer reviews the file. Timing follows the insurer’s requirements and the details of the case.
5. Policy delivery. You receive the policy. Read the form, the values, and the limitations before you rely on it.

Keep copies of every form you sign. Note each date and each person you speak with. That record helps the company and its CPA later.

Tax and cash-flow questions to review with a CPA

Premiums are generally not deductible when the company is a beneficiary. Under 26 U.S.C. § 264, no deduction is allowed for premiums on a life insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy. A CPA checks how that rule applies to your entity and your ownership structure.

The death benefit’s tax treatment also needs review. The IRS explains that whether life insurance proceeds are taxable depends on the facts. Under 26 U.S.C. § 101, amounts received because of the insured’s death are generally excluded from gross income, but that exclusion is limited when a policy is transferred for valuable consideration. For an employer-owned life insurance contract, the policyholder’s exclusion generally cannot exceed the premiums and other amounts it paid for the contract unless a § 101(j) exception applies.

Some employer-owned policies also carry reporting duties. Under 26 U.S.C. § 6039I, an applicable policyholder owning employer-owned life insurance contracts issued after the statute’s enactment must file a return. Ask your CPA whether that applies to your case.

For cash flow, budget each premium year by year. Show how those payments fit the US subsidiary’s financial plan. Coordinate the plan with the company’s own accountant. The firm’s accounting and tax work is separate from the insurance offering.

Questions people ask before buying

Why NR CPAs & Business Advisors for this coverage

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. That includes Indian-American households and business owners.

The firm pairs the insurance offering with a CPA’s view of tax and cash flow. Our team looks at premiums, death benefits, and the company’s budget together. Nischay Rawal is the responsible licensed insurance agent for this page.

Support staff, including assistants and office staff, help with the work behind each case. Coverage decisions stay with the business and its licensed agent.

Talk with our team about your coverage review

If a transferee has just taken over your US subsidiary, the question of how the company is protected may still be open. You don’t have to answer it alone. Contact us to set up a coverage review and start protecting your loved ones and your business.