Key Person Insurance When an Owner Moves to India

Key person insurance is life insurance a business buys on the life of a person whose death would affect the business, such as an owner, director, officer, partner, manager, or key employee, with that person’s written consent; the narrower officer or 20-percent-owner definition in IRC § 264(e)(1) applies only to that section’s policy-loan interest exception. For the policy-loan interest exception in IRC § 264(e)(1), the statute defines ‘key person’ as an officer or 20-percent owner, but the number of individuals who may be treated as key persons with respect to any taxpayer is limited. The company owns the policy and receives the death benefit. When that owner moves to India, the policy may need a fresh look. Ownership, underwriting, premium payments, and tax treatment can all change.

What Key Person Insurance Is and Why a Move Raises Questions

Key person insurance is a business’s own life insurance policy on a key owner or employee. The company pays the premiums and collects the death benefit. Many Indian-American business owners call it Keyman insurance. It is the same coverage under a different name.

The purpose is simple. If a key person dies, the business may lose sales, pay to recruit a replacement, or need cash to meet its debts. The death benefit gives the company funds to cover those gaps. Under IRC § 264, for the policy-loan interest exception in paragraph (1), a key person is an officer or 20-percent owner, subject to limits on how many individuals can count.

This page is for US companies whose owner is moving to India or already lives there. It also helps family members, partners, and CFOs who want to know whether the policy still fits. Most of these policies were written while the owner lived in the United States. A move can change underwriting, servicing, and the tax picture. Those changes are easier to handle before the move date.

What the Policy Covers and Who Holds Each Role

A key person policy has three roles: the owner, the insured, and the beneficiary. The company is usually both the owner and the beneficiary. The insured is the key person whose life is covered.

A business needs an insurable interest in the person it insures, unless the benefits under the contract are payable to that person or his or her personal representatives, or to anyone who had an insurable interest in the insured when the contract was made. Florida law says a business has one in its owners, directors, officers, and key persons when written consent is obtained before the insurance is bought (Fla. Stat. § 627.404). The business may not retaliate against a key person who refuses consent.

Term life insurance covers a set period. 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.” Whole life insurance lasts for the insured’s life and builds cash value. The NAIC Life Insurance Buyer’s Guide explains the difference between term and permanent coverage.

Some companies also use buy-sell agreement insurance to fund a purchase when an owner leaves. Before a move, review riders, conversion rights, and premium payment terms. Review the policy and the buy-sell terms together.

What Changes When the Insured Lives in India

A move to India can change three things: underwriting, insurer availability, and policy servicing. Each one can affect the offer, the premium, or the claim process.

• Underwriting: Insurers review residence, travel, and health history. A change in any of these can affect the offer or premium.
• Insurer availability: Carriers differ on whether they issue or service coverage for owners living abroad. Ask the insurer in writing before the move.
• Servicing: Notices, premium billing, and claim paperwork may need different steps when the owner lives abroad.
• Payment logistics: Decide whether premiums come from a US company account or an Indian account. Plan for currency transfers and bank timing.

Florida law requires every insurance contract to allow a grace period of not less than 30 days to pay a premium after the first (Fla. Stat. § 627.453). Confirm your payment steps early anyway.

Tax and Cash-Flow Considerations for a US Company

For company-owned key person policies where the company is directly or indirectly a beneficiary under the policy, premiums are not deductible. Death benefits are generally excluded from income. These are general rules, and exceptions apply.

• Premiums: Federal law does not allow a deduction for premiums when the taxpayer is a beneficiary of the policy (26 U.S.C. § 264).
• Death benefits: Amounts paid because of the insured’s death are generally excluded from gross income (IRC § 101). Under IRC § 101, the transfer-for-value rule does not apply (A) if the contract or interest therein has a basis for determining gain or loss in the hands of a transferee determined in whole or in part by reference to its basis in the hands of the transferor, or (B) if the transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer. However, these exceptions do not apply when the transfer is a reportable policy sale, meaning an acquisition of an interest in the contract by someone who has no substantial family, business, or financial relationship with the insured apart from that interest. Other rules, such as the employer-owned contract limits in § 101(j), can still restrict the amount excluded, so whether the full proceeds may be excluded depends on the facts of each transfer.
• Cash value: Whole life policies build cash value. Review guaranteed values and non-guaranteed values separately.
• Employer-owned filing: Some employer-owned policies carry a filing duty (IRC § 6039I). Ask about it at review.
• Cross-border questions: An owner’s residence in India can raise separate tax questions. We flag these for review rather than treat them as settled.

Plan premiums against company cash flow for the full policy term, not just the first year.

How a Coverage Review Works: Steps and Timeline

A coverage review is our first meeting. We check whether the current policy still fits after the owner’s move. The process follows a clear order.

1. Gather documents. Collect the policy, ownership records, board resolutions, and the planned move date.
2. Hold the coverage review. We look at owner, insured, and beneficiary roles, premiums, and the move.
3. Check insurability and carrier options. We review which insurers will issue and service coverage for an owner abroad. Underwriting may require more information.
4. Apply and underwrite. The timeline depends on the insurer’s requirements.
5. Deliver and file the policy. Keep the policy, consents, and premium records together.
6. Review each year. Check premiums, beneficiary designations, and ownership as residence or company structure changes.

We explain any fee for the coverage review in writing before it begins.

Ownership, Lender, and Transfer Questions to Settle First

Settle three things before the move: who owns the policy, who is the beneficiary, and whether a lender has rights in it.

• Ownership: Decide who should own the policy after the move. To the extent regulations provide, federal exchange rules do not apply the usual no-gain-or-loss treatment to an exchange of a policy that has the effect of transferring property to a person who is not a United States person (IRC § 1035). Review any transfer first.
• Estate rules: Insurance receivable by other beneficiaries can be included in the gross estate if the decedent held ownership rights at death (IRC § 2042). Certain transfers made within 3 years of death can also be pulled in (IRC § 2035).
• Lenders: Some lenders ask that a key person policy be assigned to them. Check loan documents against the policy terms.
• Documentation: Keep board resolutions, the policy schedule, written consents, and premium records in one file.

Connect key person coverage with any buy-sell agreement so both show the owner’s current residence.

Why NR CPAs & Business Advisors Handles This Work

NR CPAs & Business Advisors is a Miami CPA firm. We serve families, professionals, and business owners across the United States, including Indian-American households and business owners.

Insurance is offered through Nischay Rawal, a licensed insurance agent, separately from the accounting practice. Florida law requires an insurance agent to be currently licensed and appointed by an appropriate appointing entity or person (Fla. Stat. § 626.112).

We cover whole life insurance, term life insurance, key person insurance, buy-sell agreement insurance, estate planning life insurance, and NRI life insurance.

The agent is paid a commission on insurance sold. A CPA firm that accepts a commission for a sale must disclose it in writing (Fla. Stat. § 473.3205). We provide full compensation details in an engagement letter before any engagement begins.

Our team coordinates the insurance review with the company’s tax and cash-flow picture.

Common Questions About Key Person Insurance and an Owner Abroad

Protect Your Company and Your Family: Contact NR CPAs & Business Advisors

If you are a partner, a family member, or the company’s CFO, you may be planning an owner’s move. The policy may have been set up for a different situation. That is a hard place to be, and you do not have to sort it out alone.

Ask whether the policy still protects the business, the owner’s family, and any loan or buy-sell commitments after the move. Request a coverage review with our team to start that conversation.