Quick Tips: Life Insurance for Americans in the UAE

I just wanted to share a quick pointer or two on Life Insurance for Americans in the UAE. 

Purchasing a policy when living abroad can be a blurry decision for a lot of Americans expatriates here in the UAE, or the American expat anywhere else.    

I have a few American friends here, citizens or Green Card holders who have found themselves regretting some of the Life Insurance purchase decisions they’ve made in the past. 

Buying certain types of Life Insurance policies abroad can increase the tax burden back in the U.S. Any policy with investment content, cash value, or surrender value attached to it can come with these complications. Whole Life or Universal Life Policies that have investment content might not comply with the strict IRS regulations back in the U.S. 

And if for any reason, those policies aren’t reported back home by the Life Insurance company, then that can have some severe consequences for both you and the Life Insurance company. 

There is also a whole other set of complications with policies that the IRS classes as PFICs or Passive Financial Investment Company. PCIF taxation is multi-layered and complex, but in short: the U.S. discourages Americans from making passive investments abroad, and so it has some pretty unfavorable tax implications back home. 

Here are a few more technical details on the possible issues with Americans buying foreign Life Insurance policies. 

Buy Term Life Insurance 

If you’re a long-term expat, and you’re building a life in the UAE, you might choose to buy local Life Insurance. In such a case, a Term Life Insurance policy is a straight-forward purchase that gives you all the Life Insurance protection you need.  

These policies last for a fixed term of 10, 20, 25, up to 30 years, which you can choose depending on your requirements. 

Term Life Insurance has no investment element to it, making it a policy purely for cover, and hence removing any tax-related repercussions or complications for you in the U.S. 

Find an Advisor Back Home

I will say that your best bet by far is to work with a legally qualified Life Insurance advisor in the U.S. if the intent is to buy a Whole Life, Universal Life or a Cash Value Life Insurance policy. U.S. domestic life insurance policies are incredibly cost-effective and are known to have amongst the lowest global financing rates in the world. 

A Life Insurance policy that you purchase in the U.S. is probably the best bang for your buck and is more compliant and in line with tax and financial regulations in the U.S. 

And that’s that – quick and easy tips. I hope this helps. What has your experience been buying foreign Life Insurance policies as an American? Comment below!