Life Insurance for Americans Living Abroad

Americans abroad should review whether their life insurance still provides the right level of protection in the right structure.

A life insurance review should usually consider:

• whether the policy is US-issued or foreign-issued
• whether the policy is term, whole life, universal life or another structure
• whether the policy has cash value
• who owns the policy
• who pays the premiums
• which currency premiums are paid in
• which currency benefits would be paid in
• whether the insurer will continue cover after relocation
• whether the country of residence affects underwriting or claims
• whether the policy covers the current country of residence
• whether employer cover remains valid abroad
• whether beneficiaries are up to date
• whether a non-US spouse is named as beneficiary
• whether children or guardianship planning need to be considered
• whether estate tax or inheritance tax issues exist
• whether Form 8938 or FBAR reporting could apply
• whether the cover amount still matches the family’s needs

IRS Publication 525 says life insurance proceeds paid because of the death of the insured person generally are not taxable, unless the policy was transferred for value or acquired in a reportable policy sale.

However, that does not mean every life insurance policy is simple for Americans abroad.

Foreign-issued insurance contracts with cash-surrender value may create reporting considerations, and policy ownership, beneficiaries, estate planning and local tax treatment should be reviewed before assuming the arrangement works cleanly.

The death benefit is important.

But for Americans abroad, the wider structure matters too.

For example:

• a US policy may have been arranged before the client moved overseas
• a foreign policy may have cash value or investment-linked features
• employer cover may stop when employment ends
• group cover may not be portable
• premiums may be paid in a different currency from income
• the benefit may be paid in a different currency from family spending
• beneficiary forms may be outdated
• a non-US spouse may face practical or tax issues receiving proceeds
• children may need guardianship planning
• policy ownership may affect estate planning
• a trust may need legal and tax review
• local inheritance rules may affect family planning
• the policy may no longer match the mortgage, school fees or lifestyle needs

Life insurance should answer a practical question:

If I died, what would my family need financially, legally and administratively?

That means the policy should be reviewed alongside cash reserves, debts, mortgage, school fees, retirement assets, estate planning, beneficiaries and the family’s country of residence.

This page is for general information only and does not constitute personalised financial, tax, legal, insurance, investment, pension transfer, retirement, estate planning, underwriting, medical, immigration or currency advice.

Life insurance, foreign life policies, policy ownership, beneficiaries, trusts, estate tax, inheritance tax, local tax, Form 8938, FBAR, foreign policy reporting, premiums, cash value, surrender value, employer cover, claims and currency depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal and insurance advice should also be taken in the country where you live and where the policy is issued.

Financial planning should be coordinated with legal, tax, insurance, pension and estate planning advice where appropriate.

Insurance cover depends on underwriting and the policy terms.

Investment-linked and cash-value policies may involve charges, investment risk, surrender penalties and tax/reporting complexity.

Currency movements can affect the value of premiums, policy values, claims and family support.