Protect Your Business When a Key Shareholder Lives in India

Key person insurance for shareholder living in India is a policy on one key owner’s life. The company usually owns it, pays the premiums and receives the death benefit. Living abroad adds questions about underwriting, premium payments, ownership records and tax. This page explains those questions in plain words. Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice of NR CPAs & Business Advisors.

What Key Person Insurance Covers When the Shareholder Lives in India

Key person insurance pays a business for financial losses when an important owner or employee dies. The Insurance Information Institute explains that this coverage compensates a business for losses caused by a key person’s death or disability. For the general definition, read our key person insurance guide.

Four roles appear in most arrangements:

• The insured: the key person whose life is covered.
• The policy owner: the party that holds the policy and its rights.
• The premium payer: the party that pays the premiums.
• The beneficiary: the party that receives the death benefit.

A shareholder living in India raises extra questions. Underwriting, premium routes and ownership records can all change when the insured lives abroad.

This page is for company owners, co-shareholders and family members of a shareholder abroad. You may be handling this for someone else, and that is common. Start by writing down who fills each role.

Who Should Own the Policy: Company, Shareholder or Trust

The owner controls the policy, so choosing the owner is the first decision. The owner usually decides on beneficiary changes, loans and surrender.

• Company owns: The company controls the policy and usually receives the benefit. A business has an insurable interest in a key person, under Fla. Stat. § 627.404, if the key employee or person consents in writing before the insurance is purchased.
• Shareholder owns: The policy sits with the individual.

Buyout plans need matching paperwork. For a single-owner setup, see our sole owner guide.

Keep these records on file:

• Articles of incorporation and current bylaws
• Minutes of shareholder and board meetings
• A current list of directors and officers
• A shareholder record showing addresses and shares held, as described in Fla. Stat. § 607.1601

Confirm these documents with counsel and your CPA. The company’s own governing papers control.

How Living in India Affects Underwriting and Issue

Living in India changes the underwriting questions, and the insurer decides whether to issue a policy. A fully underwritten policy requires health questions, and issue depends on insurability.

The insurer reviews the insured’s health history, medical records, residence, travel and role in the company. Insurers may request medical or paramedical information gathered in India. Requirements vary by insurer and by the applicant’s country of residence, so ask early.

Florida law requires the insured to apply for or consent in writing to the contract, on or before it is made, with listed exceptions (Fla. Stat. § 627.404). Get that consent in writing before anyone signs.

Underwriters often ask how long the insured has lived abroad, about travel plans, and about the insured’s job and importance to the company. Ask the insurer in writing whether it issues policies to applicants living in India. A corporate-owned versus key person comparison shows how the company-owned structure is usually evaluated.

Paying Premiums and Managing Cash Flow from Abroad

Premiums must reach the insurer on time, from the payer named on the policy. Confirm these details before the first payment:

• The payment route the insurer accepts, such as bank transfer
• The billing currency and who bears exchange-rate changes
• Due dates and billing frequency
• The premium payer named on the policy

Keep proof of every payment in the company records. If the company pays, the money should come from the company account.

Florida law requires a grace period of at least 30 days for each premium after the first. The policy stays in force during that grace period, and the insurer may charge interest, up to 8 percent a year (Fla. Stat. § 627.453). Read the lapse terms before paying.

Plan the premium budget in both U.S. dollars and rupees. Review it when exchange rates change. A coverage review maps the premium schedule against the company’s cash flow.

Tax Questions to Bring to Your CPA

Premium deductibility depends on who the beneficiary is, so start there. Federal law denies a deduction for life insurance premiums when the taxpayer is directly or indirectly a beneficiary under the policy or contract (26 U.S.C. § 264). In most company-owned key person cases, the company is the beneficiary. Don’t assume premiums are deductible.

Under 26 U.S.C. § 101, amounts paid because of the insured’s death are generally excluded from gross income, but the transfer-for-value rule can limit that exclusion. For an employer-owned life insurance contract, the amount excluded from gross income is capped at the premiums and other amounts the policyholder paid for the contract under 26 U.S.C. § 101(j)(1), unless one of the exceptions in § 101(j)(2) applies, so the full death benefit may not be tax-free; whether an exception applies should be confirmed with your CPA. The IRS states that interest paid on proceeds held under an agreement to pay interest is taxable. Under IRC § 101(j)(4), the notice and consent requirements that § 101(j)(2) makes a condition of its exceptions for an employer-owned life insurance contract are met if, before the issuance of the contract, the employee (A) is notified in writing that the applicable policyholder intends to insure the employee’s life and the maximum face amount for which the employee could be insured at the time the contract was issued, (B) provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and (C) is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable upon the death of the employee.

Bring these questions to your CPA:

• Is the premium deductible, given who the beneficiary is?
• How will death proceeds be reported, and to whom?
• Which records must the company keep, including each insured’s consent?
• Do the tax residence rules of the owner, insured and beneficiary change the answer?

The tax review runs alongside the coverage review, so the two match. Rules change, and the answer depends on the facts and the tax year.

Policy Values, Cancellation and Loans

Cash value and loans change what the policy is worth to the owner, so read those terms before acting. Ask for guaranteed and non-guaranteed values to be shown separately in any illustration.

Florida law lets an insurer defer a policy loan for six months after application, except for paying a premium to the insurer. That loan rule does not apply to term policies (Fla. Stat. § 627.458).

Under Fla. Stat. § 627.4553, when an insurance agent recommends surrendering a life insurance policy that has a cash value and does not recommend using the proceeds to fund or purchase another annuity or life insurance policy, the agent must first provide written information about that policy. The information must include, but is not limited to, the amount of any estimated surrender charge, the loss of any minimum interest rate guarantees, the possibility of tax consequences, the amount of any forfeited death benefit, and a description of any other investment performance guarantees being forfeited as a result of the transaction, and the agent must keep a copy and the date it was provided to the owner.

Policies typically include a review period after delivery. Check its length in your policy and read the document with your CPA during that window. Replacing an existing policy can reduce coverage or create cost, so review any replacement carefully. Ownership changes can also affect values, as described in our sole owner guide.

Documents to Gather and What a Coverage Review Involves

A coverage review is the first meeting, where we review the case, ownership and tax questions together. It helps you see what documents the insurer will need before you apply.

Gather these documents:

• Government photo identification for each party
• Residence and tax records for the insured, owner and beneficiary
• Company formation documents and shareholder records
• Any existing life insurance or buy-sell policies
• A medical history summary for the insured
• Premium payment records for existing coverage

The process usually runs in these steps:

1. Coverage review of goals, ownership and tax questions
2. Documents gathered
3. Insurer selected by the licensed agent
4. Application and health questions
5. Underwriting by the insurer
6. Policy issued and delivered
7. Review period after delivery

The timeline depends on the insurer’s underwriting and on how quickly documents arrive. Nischay Rawal, a licensed insurance agent, offers the insurance separately from the accounting practice.

Why NR CPAs & Business Advisors and Frequently Asked Questions

NR CPAs & Business Advisors is a Miami CPA firm that helps families, professionals and business owners across the United States. That includes Indian-American households and business owners. The firm helps them choose and buy life insurance, with a CPA’s view of tax and cash flow.

Nischay Rawal is the responsible licensed insurance agent for this page. Insurance is offered by him separately from the firm’s accounting practice. Our team works with that coverage question and the tax and cash flow questions together.

If you’re handling this for a partner or relative in India, you don’t have to sort out ownership, underwriting and tax alone. Contact NR CPAs & Business Advisors to set up a coverage review.