Life Insurance Declation in Foreign Country
Hello,
My understanding is we need to declare the life insurance policy details as part of the Foreign Investment and it is needed to declared on FBAR as well as Form 8938 depending on the amount. But I wanted to check whether should we declare the life insurance in the foreign country also declared in this form 8938. Also, Please clarify whether we should pay any taxes on the insurance premium we paid in the foreign insurnace policies. I read about Foreign Insurance Excise tax. I am specifically interested in life insurance policies from India and whether Foreign Insurance Excise tax is applicable considering India ha treaty with US
Comments
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Hi sujiths80,
These are great questions about foreign life insurance reporting. Let me address each one.
Regarding Form 8938 and FBAR reporting, your understanding is generally correct. A foreign life insurance policy that has a cash value or surrender value is reportable on both the FBAR and Form 8938, subject to the applicable thresholds for each form. The IRS confirms this directly: "Foreign-issued life insurance or annuity contract with a cash-value" is listed as a reportable asset on both forms. (https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements). If your Indian life insurance policy has no cash or surrender value, it may not be reportable. The value you report is the current surrender/cash value, not the face value of the policy.
Regarding income taxes on the policy, premiums you pay are generally not deductible and are not themselves taxed. However, any income generated by the policy -- such as annual growth in value beyond premiums paid, bonus income, or distributions -- is generally taxable on your U.S. return even if it comes from a foreign policy.
Regarding the Foreign Insurance Excise Tax (Section 4371), India is specifically listed by the IRS as a treaty country that qualifies for an exemption from this excise tax. The IRS states that the U.S.-India tax treaty covers (i.e., waives) the excise tax on insurance premiums paid to Indian insurers. One important caveat: the treaty contains an "anti-conduit" clause, meaning the exemption does not apply if the Indian insurer reinsures the policy with a company that is not entitled to treaty benefits. In practice, this is typically handled at the insurer level, not by the individual policyholder.
Because this area involves complex international tax rules, I'd strongly recommend consulting with a tax professional who specializes in international tax to make sure your specific situation is handled correctly.
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