Key Person Insurance for an L-1 Visa Manager

Key Person Insurance for an L-1 Visa Manager

Key person insurance lets a business own a life insurance policy on a manager whose work it depends on. The business pays the premiums, owns the policy and receives the death benefit. When that manager is on L-1 status, the policy works the same way. But insurable interest, written consent and citizenship or residence facts need extra care.

NR CPAs & Business Advisors is a Miami CPA firm. Insurance is offered by the licensed agent, Nischay Rawal, separately from the accounting practice.

What Key Person Insurance Is and Who It Covers

Key person insurance pays a business for financial losses that follow a key employee’s death or disability. The Insurance Information Institute describes this coverage for small businesses.

It is often bought by:

• US subsidiaries of foreign companies
• Closely held businesses with a few owners
• Any company where one person holds client relationships, operating authority or key know-how

An L-1 manager is a common case. A foreign parent often sends a manager to run a US subsidiary’s daily work. If that person dies, the subsidiary may lose clients, cash flow and lender confidence at the same time.

Nischay Rawal is a licensed insurance agent. Florida law requires an agent soliciting or selling insurance to clearly tell prospective insureds that they are acting as an insurance agent for insurance products and identified insurers, as Fla. Stat. § 626.9531 provides.

What the Policy Covers and What It Pays

The policy pays a death benefit to the business as beneficiary. The business decides how to use that money, often with its own advisors. Common uses include covering lost revenue, steadying cash flow and funding the search for a replacement.

Two common designs apply:

• Term life insurance covers the insured for a set period. It has no cash value.
• Whole life insurance lasts for the insured’s life while premiums are paid as the contract requires. It can build cash value.

When reviewing a whole life insurance illustration, ask your licensed agent how each figure is calculated and which figures depend on future results. Dividends are not guaranteed. Federal tax law also limits cash value: to count as life insurance, a contract must meet either the cash value accumulation test or the guideline premium and cash value corridor tests in 26 U.S.C. § 7702.

Any proposal names the insurer and the policy form. Each specific policy comes from a named insurer.

Insurable Interest and Documenting the Relationship

Insurable interest means the business would suffer a real financial loss if the manager died.

The business may not retaliate against a key person who refuses consent. The interest must exist when the contract is made. It need not exist after coverage starts, under § 627.404(1).

Records that support the interest often include:

• An org chart and a written role description
• Revenue or client concentration reports that show the manager’s importance
• A board or shareholder resolution approving the policy
• The manager’s signed written consent, kept in the policy file
• Corporate papers that show the link to the foreign parent

Federal law adds a reporting layer. Federal law requires each applicable policyholder owning one or more employer-owned life insurance contracts issued after the date of enactment of this section to file a return, under 26 U.S.C. § 6039I. It also requires records showing each insured employee’s consent.

How Visa Status and Residence Affect Underwriting

Visa status and residence can change what the carrier asks and what it will issue. Health questions are required for underwritten coverage, and issue may depend on insurability.

The carrier will ask about citizenship, residency and immigration status. Those answers feed the application. For employer-owned contracts, federal tax law defines an insured as a US citizen or resident. So the manager’s status matters to the paperwork.

Carriers set their own rules for applicants who live abroad or hold temporary status. Rules differ from one carrier to another. That is why the coverage review starts with the manager’s actual status and location.

Accurate, consistent answers matter. Under [§ 627.404(3)], an insurer is entitled to rely on an applicant’s statements about insurable interest, and it incurs no legal liability beyond what the policy sets out for untrue statements it relied on in good faith. Wrong answers can affect issue and later claims.

How the Process Works, Step by Step

The process starts with a coverage review and ends with policy delivery. Carrier timing sets the later steps.

1. Coverage review. Nischay Rawal reviews the business structure, the manager’s role and the goal for the coverage.
2. Document gathering. The business collects records for insurable interest and for the manager’s status.
3. Application. The application goes to the carrier. It includes health questions and any medical requirements the carrier sets.
4. Underwriting and decision. The carrier decides whether to issue the policy. Timing is set by the carrier.
5. The Florida Department of Financial Services life insurance guide explains that period and other policy terms.

To begin, request a coverage review with our team. We’ll walk through your manager’s situation step by step.

Premiums, Tax Questions and Cash Flow

Premiums are a cash-flow decision for the business. Our team’s CPA view covers how premium payments fit the budget and the company’s reporting. It also helps the business plan for the timing of each payment.

Whether premiums are deductible is a tax question. The answer turns on the entity and the policy. Under 26 U.S.C. § 101, the death benefit is generally excluded from gross income. For an employer-owned life insurance contract, however, the general rule of § 101(j) limits the exclusion for an applicable policyholder to the sum of the premiums and other amounts the policyholder paid for the contract. That limit is subject to the exceptions in § 101(j)(2), including certain amounts paid to the insured’s family, a designated beneficiary, a trust for them, or the insured’s estate, and those exceptions depend on meeting the statute’s notice and consent requirements, so the business’s CPA should review the entity’s facts.

Fees for a coverage review are disclosed in writing before any engagement. If a commission applies, Florida requires a CPA firm to disclose it to the client in writing, as Fla. Stat. § 473.3205 provides.

Why NR CPAs & Business Advisors

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, business owners and NRI clients.

The firm’s insurance offerings include:

• Key person insurance
• Buy-sell agreement insurance
• Whole life insurance and term life insurance
• NRI life insurance

Insurance is offered by the licensed agent, Nischay Rawal. The firm’s support staff handle documents and scheduling. The firm offers no rebates or inducements with any policy.

Frequently Asked Questions

Talk Through Your Manager’s Situation

Picture a manager on L-1 status who runs client work and bank relationships for a US subsidiary. If that person were lost, the company could face a gap in cash flow and tight loan terms. Our goal is to help your business keep its footing and protect the people who depend on it.

If your subsidiary relies on a manager like this, reach out through our contact page so Nischay Rawal can review the facts with you.