Key Person Insurance for a Partner Living Outside the US

Short answer: can the business buy coverage on a partner living abroad?

It can depend on the facts. Whether it works depends on the facts, so the details below matter.

Key person insurance is a policy the business applies for, owns and pays premiums on. The insured is a person whose death would cause the business a financial loss. The business can be the beneficiary only if it has an insurable interest in the insured at the time the contract is made, and then it receives the death benefit.

For the general structure, read our key person insurance guide. This page covers the question that changes when the insured person lives abroad.

What key person insurance is and who owns, pays and receives the policy

The business usually owns the policy, pays the premiums and receives the death benefit. Every policy has four roles: the owner, the insured, the payor and the beneficiary. Usually the business fills the owner and beneficiary roles, and the insured is an owner, director, officer, partner, manager or key employee, if written consent is obtained from that person before the insurance is purchased.

The business holds these roles because it is the party that loses money if that person dies. The payout can help cover lost profits, pay for finding a replacement or fund a buyout under a buy-sell agreement.

Where the partner lives does not change these roles by itself. It can change which insurers will issue the policy and what paperwork they ask for. The insurer named on the policy is the company that issues it and pays claims. NR CPAs & Business Advisors is an accounting firm. It does not operate as the insurer.

Insurable interest: what the business must show for a partner abroad

A business needs an insurable interest in the partner’s life when it buys the policy. Under Fla. Stat. § 627.404, a business entity has an insurable interest in the life, body, and health of its owners, directors, officers, partners, managers, and key employees or key persons, if consent is obtained in writing from those key employees or persons before the insurance is purchased. Florida law sets this test. Fla. Stat. § 627.404 allows a business to insure the life of its owners, partners, managers and key persons. That applies only when those persons give written consent before the insurance is bought. 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.”

The business must have written consent from the key employees or persons before the insurance is purchased, and it should keep records that show that consent. Documents that help include:

• the partner’s ownership percentage
• the partner’s role in revenue or key client relationships
• personal guarantees or loans the partner has signed for the business
• funding duties under a buy-sell agreement

The statute also says a proposed insured’s signature on the application counts as written consent. Keep the signed consent in the file. For how shareholder loans affect this question, see our shareholder loans comparison.

Underwriting a policy on a partner who lives outside the US

Underwriting is the insurer’s review of the person before it issues a policy. Insurers set their own rules for people who live in other countries. Those rules cover which countries they accept and what medical information they need. Rules differ by insurer, so ask in writing before applying.

Health questions are required for a fully underwritten policy. Issue may depend on insurability. The partner’s medical history, and any attending physician statement the insurer requests, can affect the decision and the premium.

Payment is a practical issue too. Premiums paid from a foreign bank account or in a foreign currency may need extra paperwork. That can change payment timing, so confirm the insurer’s payment rules in writing.

Residence can also change after the policy is issued. If the partner moves to another country later, the insurer’s rules may affect the policy. Ask the insurer how it handles residence changes before you apply.

Documentation a business should assemble before applying

Gather the paperwork before the application. The insurer may ask for more, and the file must match the facts. Start with these items:

• An operating or shareholder agreement showing ownership percentages and the partner’s role.
• Recent financial statements, plus a short written note on the partner’s role in revenue or key relationships.
• A buy-sell agreement or funding plan, if one exists, showing how the policy would fund it.
• The partner’s signed consent and the beneficiary designation the insurer requires.
• A board or member resolution authorizing the business to apply for and own the policy.
• Any loan or guarantee documents tied to the partner.

Keep copies of everything. A CPA review of these papers before the policy is bought can catch gaps early.

Tax and cash-flow points a CPA would review

Taxes decide how costly the policy is to carry. 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 it. When the business is the beneficiary, plan for the premiums to be non-deductible. Confirm the treatment for your entity type.

The death benefit usually comes in tax-free. 26 U.S.C. § 101(a) generally excludes amounts paid by reason of death from gross income. The exclusion has exceptions, including the transfer-for-value rule. Interest paid on proceeds left with the insurer is taxable. The facts decide which rule applies.

For estate tax, 26 U.S.C. § 2105(a) says insurance on the life of a nonresident who is not a US citizen is not treated as US property for estate tax purposes. A cross-border owner should still review the estate picture with the CPA.

Cash flow matters as much as tax. Premiums recur every year. Model them alongside the company’s other obligations and any buy-sell funding needs. If the policy covers an employee, 26 U.S.C. § 6039I can require the policyholder to file a return and keep consent records for each insured employee.

Common questions and pitfalls with a partner outside the US

How a coverage review works with a licensed agent at NR CPAs & Business Advisors

Nischay Rawal is the responsible agent for this page. Fla. Stat. § 626.112 says no one may act as an insurance agent unless licensed and appointed. Fla. Stat. § 626.112 reads: “(1)(a) No person may be, act as, or advertise or hold himself or herself out to be an insurance agent, insurance adjuster, or customer representative unless he or she is currently licensed by the department and appointed by an appropriate appointing entity or person.”

Insurance is offered by the licensed agent, separately from the accounting practice. Our team includes support staff who help with scheduling and paperwork.

The first meeting is called a coverage review. In it, we look at the ownership records, the partner’s role and the documents listed above. We then explain which policy types may fit the business’s facts. Before we begin working with you, a written engagement letter that you sign sets out the complete details of how we are compensated, including any commission the licensed insurance agent receives from an insurer on a policy you decide to buy.

For Florida-specific context, see our Florida key person insurance page.

Next step: bring your partner’s situation to a coverage review

If your co-owner lives abroad and the company would lose money on that person’s death, a coverage review is a practical next step. Bring your ownership papers, consent records and any buy-sell agreement. You can contact us to set one up.

Issue may depend on insurability, because health questions are required. Insurance is offered by the licensed agent, separately from the accounting practice.