vtcarter6

Our UK policy gives us the option of buying critical illness cover-- if we are diagnosed with one of their listed illnesses, we get a payout. Do US policies offer anything similar?

Are there tax complications related to having life insurance policies outside of the US (are payouts taxed twice)? Or is this also protected by the treaty between the US and UK?

As always, thanks!

Guindalf

There should be no 'double-taxing'. I'm not sure an insurance payout is subject to tax in the UK anyway, but I'm pretty sure would be in the US.

Is it whole or term life? There may be a payout for cancellation which could then be re-invested in a US policy, although it's likely to carry heavy penalties..

sir_eccles

Check the small print, is it even valid if you are not UK resident?

JAJ

Receipts from term life insurance policies (ie, payment on the death of the policy holder) are generally speaking, NOT considered taxable income in either the U.K. or United States.

They may be considered part of the estate for the purpose of Inheritance Tax and/or the Federal estate tax. (and/or any State estate/inheritance tax).

For other kinds of insurance policy, it depends.


It would be very unusual for the terms of a standard life policy to require continued residence in the country. The only qualifier might be if a person took out a policy just before emigrating and did not declare the intention to do so as a material fact.

However, I would be very cautious before adding something like critical illness coverage to a U.K. policy. For example, what procedures would they have for verifying the illness and would it be practical to undertake these while not in the country. If permanently in the United States, any new insurance products should normally be U.S. based.

sir_eccles

Perhaps, though given overseas financial institutions recently acquired allergy to dealing with US persons no harm in checking now rather than finding out too late that it was worthless.

kodokan

I've got a simple term life insurance policy in the UK from way back when, with Aviva. They've been perfectly happy for me to keep it current whilst living in both Switzerland and the US (they have my address here). They said when we left the UK that it's always best to check, but as long as it's developed, First World sort of countries, that's completely fine. The only requirement was to still have a UK bank account to make the payments, I think.

vtcarter6

Is critical illness cover for US life insurance policies pretty competitive with UK cover? I think we were roughly given a figure of something like a 100,000 pound payout if we were diagnosed with cancer, for example. The premiums would be (I think) something around 180 pounds per year to add that on. Does that seem like a good deal compared to what you'd get in the US?

Just thinking that if we were ever in that position, it may give us a cushion for moving back to Europe, for example, where the difficulty of being in that situation would be less complicated by stress about job security, health insurance, etc.

Also, remind me-- in general does it make more sense to stick with the life insurance plan you got when you were younger, or is it all in the details?

I'm planning on getting quotes etc when we're over there, before canceling our UK policy, but thought I'd sound out BE wisdom first...

JAJ

Once again. If there are not specific cancellation provisions in the contract then the insurance company cannot cancel the policy. Even if it wants to.

It's fact dependent. One thing you have to consider when replacing life insurance is the contestability period. In other words, in the U.S., when you have had a policy for a period of time (usually 2 years), the insurance company cannot contest or deny payment by claiming you may have withheld a material fact when you took out the policy. There may be something similar on U.K. life policies.

Other issues to consider are that you are now older compared to when the previous policy was taken out, what your health is like compared to age norms, whether that previous policy is term or whole life, and if your future is in the United States, how concerned you are about removing your estate from the scope of U.K. Inheritance Tax. If you want to establish non-domicile status, for example, it may not be recommended to take out new U.K. life policies.