Key person coverage when a business owner moves abroad

Short answer: the policy follows its terms and its owner, not your address

What happens to a key person policy if the owner moves abroad depends on the written contract and on the company that owns it. Your address alone does not decide the outcome. Key person insurance pays a company when a person essential to its operations dies. The company is usually both the owner and the beneficiary. For the general framework, read our key person insurance guide.

Moving abroad does not rewrite the contract. The policy keeps its terms unless the company and the insurer change them in writing. Before you leave, ask the insurer for its written position on the move. A phone summary is not enough.

Each contract is different. Two companies with similar coverage can have different notice wording, premium terms and beneficiary clauses. The written terms carry more weight than general rules of thumb.

Who owns, pays for and collects the proceeds

The owner controls the contract. The insured is the key person whose life is covered. The beneficiary receives the death benefit. In most company-owned setups, the company is the owner and beneficiary, and the key person is the insured.

Florida law lets a business entity insure the life of an owner, officer or key person. The business needs that person’s written consent before the policy is bought. The same statute bars the business from retaliating against a key person who refuses consent.

Tax treatment depends on who pays and who collects. 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. A company that pays the premiums and also collects the proceeds generally cannot deduct those premiums.

Changing the owner or beneficiary is a separate act under the policy. A change of residence does not make that change by itself. Proceeds follow the beneficiary clause, so check that wording before any move.

Residence changes and notice to your insurer

The policy and the application set the duty to report a move, so check their notice wording first. Do not assume the duty is the same for every contract.

When you report, state the new address abroad and the date of the change. Also report any change in the insured’s status that the application asked about. Send the notice in writing and keep a copy.

Keep every notice and the insurer’s reply in the company’s policy file. That confirmation is the record you will want if a question comes up later.

Some key person policies fall under federal reporting rules for employer-owned contracts. 26 U.S.C. § 6039I requires an applicable policyholder to file a yearly return for these contracts issued after the statute’s 2006 enactment. Under IRC § 6039I, an applicable policyholder that owns one or more employer-owned life insurance contracts issued after the statute’s enactment must file a return for each year the contracts are owned, showing the number of its employees at the end of the year, the number of those employees insured under the contracts at year-end, the total amount of insurance in force at year-end, the name, address, and taxpayer identification number of the policyholder and the type of business it is engaged in, and that the policyholder has a valid consent for each insured employee (or the number of insured employees for whom consent was not obtained). The policyholder must also keep the records needed to show compliance. Check whether this rule applies to your contract.

Premiums, payment methods and cash flow after the move

Premiums keep coming due after a move, so the payment plan needs to be set before you leave. Florida law requires every insurance contract to give at least 30 days of grace to pay a premium after the first. Fla. Stat. § 627.453 says the policy stays in force during that grace period. The insurer may charge interest for the grace days, at no more than 8 percent a year.

Paying from an account in India affects currency, transfer timing and the company’s books. Confirm the payment method and due dates with the insurer in writing before the first payment from abroad. Then check the lapse terms in the contract, because a payment that runs past the grace period can affect the policy.

Proceeds have their own tax rules. The IRS guidance on life insurance proceeds explains when proceeds may be taxable. From a CPA’s view, the premium deduction, the tax result for proceeds and the cash flow effect depend on the company’s structure and the facts.

Ask for a coverage review before you relocate

If your company relies on you and you plan to move to India, you may need to know three things. Does the policy stay in place? Who must be told? Who pays the premiums from abroad?

Fla. Stat. § 626.9531(1) requires agents, when soliciting or selling insurance products, to clearly tell prospective insureds that they are acting as insurance agents for those products and for identified insurers. Nischay Rawal is the licensed insurance agent responsible for this page. Insurance is offered by the licensed agent, separately from the accounting practice.

To schedule a coverage review of the policy, its ownership and its notice requirements, contact NR CPAs & Business Advisors.