Are you a company that has employees outside of the US? Have you employed foreign nationals in the US and need to secure coverage on them? As globalization expands, this becomes a very common situation for many organizations. Therefore, we felt the need to put together a guide, outlining the options and requirements to get life insurance for international key employees.
Due to the nature of the topic, we’ve divided the guide into 2 main points. Feel free to click on the one that better addresses your situation.
- Start here – key employee life insurance 101
- Life insurance for cross border key personal working abroad
- Life insurance for a foreign national key employee working in the US
Prior to jumping in, we wanted to advise you that you could always reach out to us with any additional questions or would like us to take a look at your personal situation. We would take the time to evaluate your options and provide you with a personalized solution.
Key employee life insurance 101
We felt it necessary to touch on some basic information and answer common questions you might have when it comes to life insurance on key employees.
Who is a key employee?
Simply put a key employee is someone who is very valuable to the company. Based on the type of business and the organization, a key employee could be a partner, CEO, VP or sales producer. In a nutshell, a key employee is anyone who’s absence would cause financial hardship to the company.
You need to view tax treatment on life insurance for cross border key personal in 2 aspects:
Are premium tax deductible -According to the tax code, the premiums will not be tax-deductible if the business is benefiting from the policy (as normally, the company is named the beneficiary of a key employee life insurance).
Are the proceeds taxable – The proceeds could be part of the business’ taxable income unless certain conditions are met. You can review them outlined here.
Life insurance for international key employees working abroad
In this section of the guide, we will turn our attention to companies that have employees crossing the borders and working abroad. It is not uncommon for many Americans to work abroad or even for companies to hire foreign nationals to work in their offices abroad.
The list of available products will be based on the citizenship of the employee working abroad:
US citizen or permanent resident
If your key person is a US citizen or a permanent resident (green card holder), all types of life insurance products will be available. This includes term life insurance, permanent policies such as Guaranteed Universal Life, Indexed Universal Life and etc.
Foreign nationals working abroad for a US-based company
If this is the case, only permanent policies will be available with most companies. Another thing companies will be considering is financial ties to the US. They would want to ensure that the policy makes financial sense. It will require additional steps that you would need to take.
If you have a foreign national as a key employee to your business, please reach out to us immediately. We will evaluate the situation and present you with your options.
This is an important component of the puzzle. There are countries that are posing higher health and safety risks and therefore, life insurance companies avoid offering insurance to their residents. The list is different among the carriers and it changes as the world conditions change rapidly.
It is safe to bet to assume that if a country is placed on the do not travel list, it will not be approved for residency.
What is your employee’s occupation? Does it pose any additional risk to the life of your employee? There are occupations that carriers would not approve of. Some of these occupations are:
- Investigative journalist
- Political officials and their families and etc.
Duration of stay abroad
How long would your employees be working abroad? If he or she will be outside of the country for less than 12 weeks, most companies would offer the best class available. However, if the employment outside of the US would be longer than 3 months, he or she will be considered as a non-resident for the purpose of insurance. This could limit the number of available options and add on additional requirements.
Coverage amount available
There are several different ways to determine how much life insurance is sufficient.
The cost of replacement – in other words, should the key person pass away, how much would it cost to replace him or her. An example would be looking for and training someone else.
Contribution – what percentage does the key employee contribute to the overall profit of the company or what is the value of the project he or she is currently working on.
Compensation – in addition, it is not uncommon to use the employee’s annual income as a guideline on how much life insurance coverage is available. Typically, companies would allow 5-15x of the annual income of the employee. This varies among the companies and it also depends on the employee’s age.
In the cases of a key employee policy, the business or organization is the policy owner. As such, the entity is also named as a beneficiary on the policy and is responsible for the premium payments.
Step by step process to secure the policy
Here are some of the basic steps to secure life insurance for international key employees:
Step 1: Understand your needs and match you with the best product for you and the company.
Step 2: Application – this is essential: the employee needs to be in present in the US in order to secure the policy. He or she would need to arrive in the US in order to start the application.
Step 3: Medical exam – it is very likely that a medical exam will be required. Based on how long he or she will be in the US, we’ll try to schedule it in advance.
Step 4: Underwriting – typically during this step, the company will be reviewing the application, the results from the medical exam and your employee’s medical history. This is the longest part. If he or she is able to gather any medical history, prior to coming to the US, this could save us A LOT of time.
Step 5: Approval and Policy Delivery – once the application is approved, we will move to the policy acceptance and delivery.
Life insurance for a foreign national key employee working in the US
In this portion of the guide, we will turn our attention to foreign nationals working in the US. Below are the key factors companies will consider when underwriting the life insurance application:
- Country of origin
- Duration of employment
- Available products
- Steps to apply and requirements
Country of origin
Due to Government restrictions and the company’s guidelines, there are countries whose citizens we are not able to offer coverage to.
These guidelines vary from company to company and change on a regular basis. This is why is crucial to work with an agency that specializes in offering insurance to foreign nationals.
Duration and type of employment
How long would the employee be in the US is that time sufficient to justify the need for coverage.
We had worked with an international fashion company opening a store in Las Vegas, NV. They’ve flown out a partner to ensure the store was set up properly and was up to the standards of the company. This is was a short term contract and he would’ve left the US in 3 weeks to go back to the UK.
In this case, life insurance in the US did not make financial sense and companies would not approve of the coverage
Based on the circumstances, term and permanent products might be available. Our suggestion is to examine the needs of the company, afterward, we would evaluate your situation and present you with the available options
Steps to apply and requirements
After we determine the eligibility and match you with the right option, we would move forward with the application process. During this step, we would obtain the necessary forms, complete the application and schedule the medical exam, if one is required. Here are some of the documents companies would need:
- Copy of visa/passport
- W-8 BEN form – some companies will require this form. It is used as a verification tool and it also set the status as a foreign national
- Supplemental documents outlining the need for coverage and how was the coverage amount calculated
Complete medical history – now this could be tricky, especially if the employee’s history is from another country. This would mean that carriers would need to get a copy of it and possibly have it translated in English in order to review it. Typically, obtaining medical records is the lengthiest part of the application process. However, when the records are from a foreign medical facility, this could make it even more challenging.
Approval and Policy Delivery
Once the application and underwriting are complete, the carriers will issue a decision and move towards placing it in force.
We hope you find this guide helpful. If you have any questions on life insurance for international key employees or would like us to provide you with a personalized solution, simply reach out to us.