Declaring Life Insurance: Tax Returns And Form 8938

Life insurance policies can be complex, and the US reporting requirements associated with them vary from country to country. In the US, the general rule is that if you have a foreign life insurance policy that contains a surrender value, then you are required to report the information on your annual returns. This is because the surrender value of the policy is considered reportable, and failure to report this information can lead to extensive fines and penalties.

If you are a US person who is required to file a US tax return, then you are also required to report your worldwide income. This includes income from foreign life insurance policies. It is important to note that not all foreign life insurance policies are reportable, and it usually requires the policy to have a surrender or cash value to be reported on forms such as the FBAR and Form 8938.

The determination of whether a specific foreign life insurance policy should be reported on Form 8938 should be left to an international tax attorney. Consulting with a tax specialist is essential to ensure compliance with tax laws and avoid potential penalties.

Declare foreign life insurance policies on tax returns

U.S. taxpayers who own foreign accounts, assets, and investments may be required to declare this information to the U.S. government each year on various international information reporting forms. This includes foreign life insurance policies, which can be a common surprise for taxpayers. However, not all foreign life insurance policies are reportable. In general, for a foreign life insurance policy to be reportable, it must have a surrender value or cash value. In this case, the policy is reported on forms such as the FBAR and Form 8938.

Form 8938 is a form developed to ensure individuals with specified foreign financial assets get into compliance by disclosing their foreign assets and account information to the IRS. The form is filed along with your tax return. It is important to note that certain items that may need to be reported on other forms such as an FBAR may not need to be included on Form 8938, and vice versa. For example, direct stock ownership would be included on Form 8938 but not on an FBAR.

On Form 8938, a life insurance policy is not considered to be a deposit account for Part I of the form. However, a life insurance policy could be considered a foreign financial asset for Part II if the policy has a cash surrender value.

In addition to reporting on Form 8938, taxpayers who make payments to foreign life insurance policies for premiums may also be required to file a Form 720 to report the premium payments to the IRS and pay a 1% excise tax on the value of the annual premiums.

It is important to note that the rules and requirements for declaring foreign life insurance policies on tax returns can be complex and may vary based on individual circumstances. Taxpayers with specific questions about their reporting requirements should consult with a qualified tax professional or specialist for personalized advice.

Report cash-surrender non-investment policies

If you have a foreign life insurance policy that contains a surrender value, then you are required to report the information on your annual returns. This means that if you have the option to sell the policy before it reaches maturity, it has a surrender value and must be reported.

The surrender value of the policy is considered reportable, and failure to report the information can lead to extensive fines and penalties.

Form 8938 is part of the Tax Return and has different reporting thresholds depending on whether the person filing is a US resident or foreign resident, and whether the person is filing as single, married filing separately, or married filing jointly.

For example, if you are a single person residing in the United States, the baseline threshold requirement is $50,000 on the last day of the year. If you have less than $50,000 on the last day of the year but more than $75,000 on any other day of the year, you are still required to file. Conversely, if you are married filing jointly and reside overseas, the threshold requirement is $400,000 on the last day of the year. If you have less than $400,000 on the last day of the year but had more than $600,000 on any given day of the year, you would still have to report the asset on Form 8938.

If you have numerous specified foreign financial assets to report on Form 8938, you can attach additional blank Parts I and/or II as needed and check the box at the top of the form.

It is important to note that not all foreign life insurance policies are reportable. If the policy has no surrender or cash value, it may not need to be reported. For example, if the policy has no value unless it is completed to term, it may not need to be reported.

Additionally, there may be income tax implications for owning foreign life insurance policies. Taxpayers may be required to file an additional Form 720 and pay a 1% excise tax on the foreign premiums paid.

It is always recommended to consult with a Board-Certified Tax Law Specialist to determine your specific reporting requirements.

Report investment policies

If you are a US citizen with foreign investment policies, you may be required to report them to the US government each year. This includes foreign life insurance policies. If you are a US citizen, you must report your worldwide income, even if it is earned overseas.

Not all foreign life insurance policies need to be reported. However, if the policy has a surrender value or cash value, it must be reported on forms such as the FBAR and Form 8938. The surrender value of the policy is considered reportable, and failure to report it can lead to extensive fines and penalties.

If the life insurance policy distributes income, this income is taxable and reportable on a US tax return, even if the income is generated overseas. This includes year-over-year growth of the value of the policy, accumulated income, distributions from the policy, and certain bonus payments.

If you are a US citizen and have an interest in a foreign pension or deferred compensation plan, you must report this interest on Form 8938 if the value of your specified foreign financial assets is greater than the reporting threshold that applies to you.

Form 8938 must be filed by certain US taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000. Higher asset thresholds apply to US taxpayers who file a joint tax return or who reside abroad.

Specified foreign financial assets include:

• Financial accounts maintained by a foreign financial institution
• Stock or securities issued by someone other than a US person
• Any interest in a foreign entity
• Any financial instrument or contract that has, as an issuer or counterparty, a non-US person

If you are required to file Form 8938, you do not have to report financial accounts maintained by:

• A US payer (such as a US domestic financial institution)
• The foreign branch of a US financial institution
• The US branch of a foreign financial institution

Declare income from life insurance

If you are a US citizen, you must declare your worldwide income, including income from life insurance, on your tax return. This is the case even if the income is earned overseas, or if it is not distributed and/or taxable in your country of origin.

In the US, life insurance proceeds are generally not taxable and do not need to be reported. However, if you receive interest from a life insurance policy, this is taxable and must be reported.

If you are declaring foreign life insurance, you may need to fill out Form 8938. This is the case if your policy has a cash surrender value. You will also need to report the surrender value of the policy. If you fail to do this, you may face extensive fines and penalties.

If you are declaring income from a life insurance policy in India, you can claim tax benefits on the premiums you have paid. You can claim a maximum deduction of 1.5 lakh rupees on the premiums paid in a year under Section 80C.

Declare life insurance proceeds

Life insurance is essentially a contract between three parties: the owner, the insured, and the beneficiary. The owner maintains the policy, the insured is the person covered by the policy, and the beneficiary is the person who has a legal claim to the death benefit.

When the insured person passes away, their beneficiaries can submit a claim and receive their death benefits. To do this, they must send proof of the insured’s death to the insurance carrier. This is usually a death certificate, but in some cases, a court declaration may be required if the insured is missing and presumed dead.

In the United States, four things must happen for a court to declare a missing person dead:

• The person has been missing without explanation or communication for a continuous specific amount of time (typically seven years).
• There must be no reasonable explanation for the disappearance.
• There must be a total absence of communication from the missing person during these years.
• A diligent search for the missing person must have been conducted.

Once a court declaration has been issued, the beneficiary can take it to the insurance carrier and receive a conditional payout. If the person declared dead is later discovered alive, the insurance company can rescind the death benefit proceeds plus interest.

If the insured is not missing, the process of filing a death benefit claim is relatively straightforward. First, contact the insurance agent or employer who sold the policy or offered the coverage. Second, obtain a copy of the official death certificate and other required documents. Third, complete a claim form from the insurance company. Finally, submit the claim paperwork, IRS forms, and death certificate to the insurance company.

In general, life insurance proceeds you receive as a beneficiary due to the death of the insured person are not taxable income and do not need to be reported to the IRS. However, any interest received on the payout is taxable and should be reported. If the policy was transferred to the beneficiary for cash or other valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration paid, additional premiums paid, and certain other amounts.

If the life insurance policy is a foreign policy, it may need to be reported on a US tax return. Form 8938 is used to report specified foreign financial assets, including foreign financial accounts, certain foreign securities, and interests in foreign entities. A foreign life insurance policy with a cash surrender value may be considered a foreign financial asset and would need to be reported on Form 8938.

Frequently asked questions