Income generated from a Foreign Life Insurance Policy is taxable in the U.S., and the value of the policy reported to the IRS. If the policy has a surrender value or cash value, and/or is considered a ULIP there may be additional tax issues, such as PFIC. FBAR and 8938 reporting may also be required.
What is a foreign life policy?
The proceeds from a foreign life assurance policy on the death or disability of the policyholder are liable to tax to the extent that those proceeds are the profits from investment and not a payment in respect of the risk or death or disability which an assurance company assures against.
When to report a foreign life insurance policy?
The IRS requires that a Foreign Life Insurance Policy be reported on the FBAR (FinCEN 114) when it meets the threshold reporting requirement. Typically if a Foreign Life Insurance Policy has a Cash Value and meets the FinCEN Form 114 threshold for reporting. Some common examples of foreign life insurance, include:
When to file FBAR for foreign life insurance?
The FBAR is the Report of Foreign Bank and Financial Account Form. It is a form required to be filed annually by any U.S. person if the person has more than $10,000 in annual aggregate total in their foreign accounts. Unfortunately, foreign life insurance policies are considered foreign accounts.
How does the IRS tax foreign life insurance?
The IRS levies a 1% excise tax on the foreign life insurance premiums that you pay each year. The tax is submitted along with a form 720, and is submitted quarterly to the IRS. Therefore, for each year that you pay foreign life insurance premiums, you would submit four (4) form 720s (one for each quarter). FBAR Reporting (FinCEN 114)
Is the surrender value of a foreign life insurance policy reportable?
If the foreign insurance policy does not have a surrender or “cash” value, it may not be reportable. The Surrender Value is the current “cash” value of the life insurance policy.
