{"id":4181,"date":"2026-10-22T04:25:15","date_gmt":"2026-10-22T04:25:15","guid":{"rendered":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/transfer-key-person-policy-to-departing-owner\/"},"modified":"2026-10-29T23:16:35","modified_gmt":"2026-10-29T23:16:35","slug":"transfer-key-person-policy-to-departing-owner","status":"publish","type":"page","link":"https:\/\/nrcpas.com\/life-insurance-guides\/key-person-insurance\/transfer-key-person-policy-to-departing-owner\/","title":{"rendered":"Transfer Key Person Life Insurance Policy to Departing Owner"},"content":{"rendered":"\n
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Key Person Insurance<\/a> | Miami, Florida<\/p>

Plan the Transfer of a Key Person Life Insurance Policy to a Departing Owner<\/h1>

Nischay Rawal, a licensed insurance agent, helps business owners review the policy, the transfer structure and the tax picture before anyone signs. Insurance is offered separately from the firm's accounting practice.<\/p>

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By Nischay Rawal \u00b7 Published October 22, 2026<\/p>\n\n

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Before you transfer key person life insurance policy to departing owner, know this rule. A transfer can make part of the death benefit taxable. Whether it does depends on how the transfer is structured.<\/p>\n

This page explains the transfer-for-value rule, the main exceptions, how the taxable part is figured, and what to settle before any paperwork is signed. Insurance is offered by Nischay Rawal, a licensed insurance agent, separately from the accounting practice of NR CPAs & Business Advisors, a Miami CPA firm.<\/p>\n

What the Transfer-for-Value Rule Means for a Key Person Policy<\/h2>\n

A transfer for value can make part of the death benefit taxable to the new owner. Here is how that works.<\/p>\n

A key person policy is life insurance that a business owns on the life of an owner or employee whose loss would hurt the company. The Insurance Information Institute<\/a> explains that key person life insurance compensates a business for financial losses caused by the death or disability of a key employee.<\/p>\n

Death benefits are usually not income. Under IRC \u00a7 101(a)(1)<\/a>, gross income does not include amounts paid by reason of the insured’s death, subject to listed exceptions. The transfer-for-value limit is one of those exceptions.<\/p>\n

The limit applies when a policy changes hands for value. Under IRC \u00a7 101(a)(2)<\/a>, the amount excluded from gross income cannot exceed the actual value paid for the policy plus the premiums and other amounts the new owner pays later. This cap does not apply 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. It also does not apply if the new owner’s basis is figured in whole or in part from the prior owner’s basis. Anything above that cap can be taxable.<\/p>\n

So the core answer is this: a transfer can make part of the death benefit taxable. Some transfers fall outside the limit, so the structure of the transfer decides the result.<\/p>\n\n

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Not sure what your next step is?<\/h3>

Talk it through with our team — we can walk you through how a situation like yours is usually handled and what your options are.<\/p>

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Schedule a coverage review<\/a><\/div><\/div>\n<\/div>\n

Who Faces This Question and When<\/h2>\n

Anyone who owns or is leaving a key person policy can run into this rule. It usually comes up at a change point in the business.<\/p>\n